Antoine Kornprobst
- 6 November 2025
- OCCASIONAL PAPER SERIES - No. 377Details
- Abstract
- This paper serves as a reference guide on the effects of “standard” monetary policy shocks on output and prices, based on harmonised simulation exercises conducted across models of the European System of Central Banks (ESCB), meta-analysis of existing empirical literature for the euro area, and selected works on heterogeneity and non-linearities in the monetary transmission mechanism as captured by empirical models. Our analysis starts by comparing the effects of monetary policy shocks as estimated by structural, semi-structural and dynamic stochastic general equilibrium (DSGE) models, and identifying the main sources of heterogeneity – most notably via the specification of monetary policy rules, the slope of the Phillips curve, the role of real rigidities and financial frictions, and the expectations formation mechanism. While DSGE models tend to produce sharper responses, semi-structural models often reveal more gradual and persistent effects, in line with backward-looking empirical models. The second chapter presents a meta-analysis of estimated effects based on the empirical literature, which are broadly consistent with the results obtained from the ESCB models, although differences might appear when correcting for publication bias, or accounting for different identification frameworks. The study is then complemented by selected works on heterogeneity and non-linearities in the monetary transmission mechanism as captured by empirical models. Our analysis in the final chapter shows that monetary policy transmission is heterogeneous across countries, sectors, demand components, and time. It also reveals important non-linear and state-dependent dynamics: in high-inflation periods, greater price and wage flexibility amplifies the response of inflation while dampening output effects, thereby lowering the sacrifice ratio. [...]
- JEL Code
- C22 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models &bull Diffusion Processes
C52 : Mathematical and Quantitative Methods→Econometric Modeling→Model Evaluation, Validation, and Selection
D58 : Microeconomics→General Equilibrium and Disequilibrium→Computable and Other Applied General Equilibrium Models
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
- 30 June 2025
- OCCASIONAL PAPER SERIES - No. 372Details
- Abstract
- This report focuses on the implications of the changed inflation environment for the ECB’s monetary policy strategy, including the lessons learned from both the low inflation and high inflation periods, and the transition from one to the other. The starting point of the report is the outcome of the Monetary Policy Strategy Review 2020-21. While the previous review was conducted in an economic environment of low inflation, with interest rates in proximity to the effective lower bound (ELB), the inflation surge that followed the COVID-19 pandemic underscores the importance of a monetary policy strategy that enables the Governing Council to effectively respond to major changes in the inflation environment.
- 30 June 2025
- OCCASIONAL PAPER SERIES - No. 371
- 26 April 2024
- WORKING PAPER SERIES - No. 2935Details
- Abstract
- We assess the effectiveness of ECB monetary policy in the post-pandemic period using a state-of-the-art estimated DSGE model of the euro area. Through counterfactual experiments varying the timing of interest rate hikes, policymaker preferences, and optimality criteria, we compare alternative strategies against actual policy. The ECB’s decision to begin hiking the policy rate in 2022:Q3 effectively balanced inflation and output stabilization, leading to a brief slowdown and inflation converging to target by end-2025. An earlier hike in 2021:Q4 would have reduced peak inflation but caused a prolonged recession, while a delayed hike to 2024:Q1 would have fueled persistent inflation above 4% until 2026. Optimal policy simulations indicate that a more aggressive tightening could have lowered inflation volatility only at the cost of deeper contractions in GDP. Real-time monetary policy counterfactuals confirm that actual policy closely aligned with optimal prescriptions, effectively managing the trade-off between inflation and growth.
- JEL Code
- C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
- 15 March 2024
- OCCASIONAL PAPER SERIES - No. 344Details
- Abstract
- This paper takes stock of the ECB’s macroeconometric modelling strategy by focusing on the models and applications used in the Forecasting and Policy Modelling Division. We focus on the guiding principles underpinning the current portfolio of the main macroeconomic models and illustrate how they can in principle be used for economic forecasting, scenario and risk analyses. We also discuss the modelling agenda which is currently under development, focusing notably on heterogeneity, machine learning, expectation formation and climate change. The paper makes it clear that the large macroeconometric models typically developed in central banks remain stylised descriptions of our modern economies and can fail to predict or assess the nature of economic events (especially when big crises arise). But even in highly uncertain economic conditions, they can still provide a meaningful contribution to policy preparation. We conclude the paper with a roadmap which will allow the ECB and the Eurosystem to exploit technological advances and cooperation across institutions as a useful means of ensuring that the modelling framework is not only resilient to disruptive events but also innovative.
- JEL Code
- C30 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→General
C53 : Mathematical and Quantitative Methods→Econometric Modeling→Forecasting and Prediction Methods, Simulation Methods
C54 : Mathematical and Quantitative Methods→Econometric Modeling→Quantitative Policy Modeling
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 28 February 2024
- OCCASIONAL PAPER SERIES - No. 343Details
- Abstract
- This paper applies the semi-structural model proposed by Bernanke and Blanchard (2023) to analyse wage growth, price inflation and inflation expectations in the euro area. It is part of a broader project coordinated by Bernanke and Blanchard to provide a unified framework for analysing and comparing global inflation dynamics across the major world economic areas, including US, euro area, Canada, UK, and Japan. The paper makes four main contributions. First, it estimates the model using quarterly data from the euro area covering the period from the first quarter of 1999 to the second quarter of 2023. Second, it conducts an empirical assessment of how euro area price inflation responds to various exogenous shocks. This includes evaluating how shock transmission evolved during the pandemic and comparing it with experience in the United States. Third, the model decomposes the drivers of wage growth and price inflation in the post-pandemic period. It emphasises the transmission channels and the respective roles of supply and demand forces that have contributed to the recent inflationary surge. Notably, it identifies the impact of labour market tightness, productivity, global supply chain disruptions and energy and food price shocks. Finally, the model generates conditional projections based on these exogenous shocks, enabling a more robust cross-check of inflation forecasts during times of significant global economic disturbances.
- JEL Code
- C5 : Mathematical and Quantitative Methods→Econometric Modeling
E47 : Macroeconomics and Monetary Economics→Money and Interest Rates→Forecasting and Simulation: Models and Applications
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
F4 : International Economics→Macroeconomic Aspects of International Trade and Finance