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Afonso S. Moura
- 18 October 2024
- WORKING PAPER SERIES - No. 2989Details
- Abstract
- This paper analyses how country-specific institutional quality shapes the impact of monetary policy on downside risks to GDP growth in the euro area. Using identified high-frequency shocks in a growth-at-risk framework, we show that monetary policy has a higher impact on downside risks in the short term than in the medium term. However, this result for the euro area average hides significant heterogeneity across countries. In economies with weak institutional quality, medium-term growth risks increase substantially following contractionary monetary policy shocks. In contrast, these risks remain relatively stable in countries with high institutional quality. This suggests that improvements in institutional quality could significantly enhance euro area countries’ economic resilience and support the smooth transmission of monetary policy.
- JEL Code
- C23 : Mathematical and Quantitative Methods→Single Equation Models, Single Variables→Panel Data Models, Spatio-temporal Models
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
F45 : International Economics→Macroeconomic Aspects of International Trade and Finance
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
O43 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity→Institutions and Growth