The macroeconomic effects of unconventional monetary policy: Comparing euro area and US models with shadow rates

This paper assesses and compares the macroeconomic effects of unconventional monetary policy (UMP) measures in the euro area (EA) and the United States (US) in a unified framework. Using shadow-rate estimates to characterise the overall stance of monetary policy, we estimate a large-scale 3-region (EA, US, RoW) DSGE model with data for 1999q1-2019q4, and we perform counterfactual simulations (no UMP) with the short-term policy rate at the effective lower bound (ELB). We find contributions of UMP to output growth and inflation in the EA and US to have the same orders of magnitude (0.1-0.4 pp p.a. for real GDP growth; 0.2-0.7 pp p.a. for CPI inflation). The counterfactual suggests that EA output and price levels would have been 3.4% and 6.7% below actual levels in 2020q4 in the absence of UMP. The stronger rebound of activity and prices in the US led to US monetary policy normalisation already during 2016-2019.