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The effect of monetary policy shocks on macroeconomic variables: Evidence from the Eurozone

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  • Murgia, Lucia M.

Abstract

This paper investigates how European Central Bank (ECB) monetary policy shocks impact industrial production (output) and inflation (prices). I gather a novel dataset of macroeconomic forecasts, and using a narrative approach, I construct a new measure of monetary policy shocks. Industrial production responds to an unpredictable positive monetary policy shock of 100 basis points with a decline of over 0.5%. On the contrary, inflation responds weakly with a very modest decrease of 0.05%.

Suggested Citation

  • Murgia, Lucia M., 2020. "The effect of monetary policy shocks on macroeconomic variables: Evidence from the Eurozone," Economics Letters, Elsevier, vol. 186(C).
    • Handle: RePEc:eee:ecolet:v:186:y:2020:i:c:s0165176519304070
    DOI: 10.1016/j.econlet.2019.108803
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    9. James Cloyne & Patrick Hürtgen, 2016. "The Macroeconomic Effects of Monetary Policy: A New Measure for the United Kingdom," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(4), pages 75-102, October.
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    Cited by:

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    2. Mariana Hatmanu & Cristina Cautisanu & Mihaela Ifrim, 2020. "The Impact of Interest Rate, Exchange Rate and European Business Climate on Economic Growth in Romania: An ARDL Approach with Structural Breaks," Sustainability, MDPI, vol. 12(7), pages 1-23, April.
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    5. Carvelli, Gianni & Bartoloni, Eleonora & Baussola, Maurizio, 2024. "Monetary policy and innovation in Europe: An SVAR approach," Finance Research Letters, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    Monetary policy; Narrative identification; Macroeconomic forecasts;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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