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A Peer-reviewed scientific articles/A1 Journal article (refereed), original research
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The effect of the ECB’s conventional monetary policy on the real economy : FAVAR-approach, Empirical Economics 6 ; December (2019). Laine, Olli-Matti

Category A Peer-reviewed scientific articles
Sub-category A1 Journal article (refereed), original research
auki Internal authors
Laine Olli-Matti / Monetary Policy and International Economy
All authors as text Laine, Olli-Matti 
Number of authors
Status Published
Year of publication 2020 
Date 11.07.2019 
Name of article The effect of the ECB’s conventional monetary policy on the real economy : FAVAR-approach 
Name of journal Empirical Economics
Volume of issue 59 
Number of issue 6 ; December 
Pages 2899–2924 
Abstract This study applies factor-augmented vector autoregressive models to investigate the effect of the European Central Bank’s (ECB) conventional monetary policy on the real economy. More specifically, the study examines how unanticipated changes in the ECB’s policy rate have affected unemployment rate and industrial production. The effect of monetary policy on unemployment rate and industrial production is estimated to be strong and statistically significant using the data from January 1999 to July 2017 or from the pre-crisis period. However, after the beginning of the crisis the responses weaken drastically and become sometimes statistically insignificant, indicating that the effect of the ECB’s conventional monetary policy became weaker after the financial crisis. This finding is extremely interesting because one could presume either weaker or stronger effect based on economic theory. Additionally, the previous studies that have analysed the possible changes in the monetary policy effectiveness in the euro area have not found any changes (e.g. Bagzibagli in Empir Econ 47(3):781–823, 2014; Von Borstel et al. in Int J Money Finance 68:386–402, 2016).
Free text descriptor in Finnish rahapolitiikka; korot; FAVAR; EKP; työttömyys; teollisuustuotanto; euroalue 
Free text descriptor in English Monetary policy, Real economy, FAVAR, Low interest rates, Financial crisis 
JEL-codes E52, E58, E6 
ISSN / e-ISSN 0377-7332 
auki Internet addresses
Additional information Online first 11 July 2019
Open Access Open access -publication