Unveiling the ECB's Monetary Policy Behaviour Under Different Inflation Regimes

Abstract

This paper provides clear-cut evidence that the ECB follows an asymmetric monetary policy rule concerned more with inflation rather than sustaining economic growth. The driving force of interest rate cuts is the fall of the inflation rate below its target level. The paper evaluates the implications of the above policy on real activity by simulating a small New Keynesian model. This clearly indicates that the reaction of the ECB to negative output deviations and/or to financial stress conditions in the low inflation regime fails to reduce the adverse effects of negative demand and financial sector shocks on economic activity.

Dealing with Endogeneity in Threshold Models Using Copulas: An Illustration to the Foreign Trade Multiplier

“…Examples of applications of threshold models and relationships in economics (see Teräsvirta et al (2010) for a survey) include studies on business cycles (e.g., Potter (1995)), the debt-growth relationship (e.g., Reinhart and Rogoff (2010), Kourtellos et al ( 2016)), financial markets and volatility (e.g., Gospodinov (2005), Griffin et al (2007), Tsay (2010) for a survey), monetary policy models (e.g., Davig and Leeper (2007), Kazanas and Tzavalis (2015)). The econometrics of the threshold models have been developed in a number of recent studies (e.g., Hansen (1999Hansen ( , 2000, Gonzalo and Pitarakis (2002), Caner and Hansen (2004) and Pitarakis (2008), Kapetanios (2001Kapetanios ( , 2010) among others).…”