The ECB’s Exit Strategies out of Unconventional Monetary Policies: A Euro Area Prospective VAR Study

Details

Supervisors

RYCHALOVSKA, Yuliya

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques, orientation générale

Abstract

We develop a benchmark Vector Auto-Regressive model to simulate different exit paths for the ECB to follow when unwinding its accommodating monetary policies, as measured by the shadow rate of the European Central Bank. We build the model with time series ranging from 2005Q3 to 2018Q1 including output growth, inflation, the unemployment, the shadow rate and the real effective exchange rate in the amended model. We find that the ECB should, over all, prefer a medium speed of exit, as it seems that it will be the least distorting way of exiting unconventional monetary policies. All in all, our model suggests that the exit period will not be one of prosperity but also indicates that once the exit is complete, the economy will be stronger than it was before.