Monetary policy and its impact on inflation and growth
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Date
2023-09
Authors
Μέρμελας, Γεώργιος
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Abstract
This study investigates how monetary policy shocks of the European Central Bank (ECB) influence the macroeconomic environment, focusing more on consumer prices and output growth. The shock extraction is accomplished through an innovative approach which tries to solve the endogeneity issue. We estimate the interest rate changes using ECB forecasts about inflation and growth, and after separating the systematic component from the equation, we use the residuals as monetary policy shocks. Subsequently, the second phase of the study presents how HICP, Retail Sales index, Unemployment and Economic Sentiment Indicator are affected by an unexpected change in policy rates. The common result among these indicators is that their response to a monetary policy shock is larger during recessions. The economic sentiment appears to be more affected compared to the
rest variables, and the cumulative responses are more significant using panel data in local projections.
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Keywords
Monetary Policy, ECB, Shock, Policy rates, Inflation