Browsing by Subject "makrotaloustiede"

Effects of unconventional monetary policy have been studied thoroughly since the Great Recession. Nonetheless, much of the literature focuses on the initial financial market impact of the policy and the broader macroeconomic effects, e.g. the effect of unconventional monetary policy on output and inflation, has received less attention. This reflects largely the difficulty of constructing reliable measures for unconventional monetary policy that could be used to identify unconventional monetary policy shocks. Moreover, most of the existing studies focus on the US and the effects in the euro area have received less attention. In this thesis I contribute to the literature by estimating the macroeconomic impact of ECB’s monetary policy shocks on various variables, such as GDP, inflation and interest rates. I use a factor-augmented vector autoregression which makes it possible to use high-dimensional data to conduct monetary policy analysis. I extract common factors from a panel consisting of 155 macroeconomic indicators and then use these factors along with a policy variable in a VAR to identify monetary policy shocks. In order to capture the effects of unconventional monetary policy I use estimated shadow rates as proxies for monetary policy stance. These shadow rates can be interpreted as the level of the short-rate in the absence of an effective lower bound on nominal interest rates and they contain information from the whole yield curve. I then identify monetary policy shocks using standard recursive identification. I conduct structural analysis by computing impulse response functions for various macroeconomic variables. In my baseline specifications expansionary monetary policy shocks are associated with rising output and falling interest rates whereas the responses of price level and employment are more muted. These results are largely robust to alternative specifications. Nevertheless, the impulse responses as well as counterfactual simulations and forecast error variance decompositions suggest that monetary policy shocks have contributed fairly little to euro area output and price variation and that some of these effects might not necessarily show in the data yet. My results suggest then that the effectiveness of unconventional monetary policy is likely coming mainly from its expected component.