Shocks, Structures or Monetary Policies? The Euro Area and US After 2001

By L. Christiano, Roberto Motto, M. Rostagno. Social Science Research Network, 2008

255 citations recorded by the source corpus.

The US Federal Reserve cut interest rates more vigorously in the recent recession than the European Central Bank did. By comparison with the Fed, the ECB followed a more measured course of action. We use an estimated dynamic general equilibrium model with financial frictions to show that comparisons based on such simple metrics as the variance of policy rates are misleading. We find that - because there is greater inertia in the ECB's policy rule - the ECB's policy actions actually had a greater stabilizing effect than did those of the Fed. As a consequence, a potentially severe recession turned out to be only a slowdown, and inflation never departed from levels consistent with the ECB's quantitative definition of price stability. Other factors that account for the different economic outcomes in the Euro Area and US include differences in shocks and differences in the degree of wage and price flexibility.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/7841076cbd1d634990e2ce631b876b73155f83a9

Citations in the corpus

• Financial Frictions, Financial Integration and the International Propagation of Shocks (2011, unknown): “In order to isolate the balance-sheet effect from the no-arbitrage effect, we will consider four different scenarios concerning international financial integration: i) the case of complete financial autarky; ii) the case of no trade in capital but integration in bond trade; iii) the case of no…”
• Macroeconomic Propagation Under Different Regulatory Regimes: Evidence From an Estimated DSGE Model For the Euro Area (2010, unknown): “Recent work by Christiano, Motto, and Rostagno (2007), Christensen and Dib (2008), and Liu, Wang, and Zha (2009) quantifies the interlinkages between the financial and real sectors using a financial accelerator mechanism.”
• Jump-Starting the Euro-Area Recovery: Would a Rise in Core Fiscal Spending Help the Periphery? (2015, unknown): “…financial accelerator, we found that the output responses to a core spending shock are amplified modestly relative to Figure 9 when the model is augmented to include a financial accelerator following the approach of Bernanke, Gertler, and Gilchrist (1999) and Christiano, Motto, and Rostagno (2008).”
• How Important is Money in the Conduct of Monetary Policy (2006, unknown): “where ψj ≡ [1 0] A a for each j.(14) This shows how inflation is determined by the inflation target of the central bank, and by current and expected future discrepancies between the natural rate of interest and the intercept adjustment made to central bank’s reaction function.”