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Burgard, Jan Pablo
Neuenkirch, Matthias
Nöckel, Matthias
Year of Publication: 
Series/Report no.: 
Research Papers in Economics 15/16
In this paper, we estimate a logit mixture vector autoregressive (Logit-MVAR) model describing monetary policy transmission in the euro area over the period 1999..2015. MVARs allow us to differentiate between different states of the economy. In our model, the state weights are determined by an underlying logit model. In contrast to other classes of non-linear VARs, the regime affiliation is neither strictly binary nor binary with a (short) transition period. We show that monetary policy transmission in the euro area can indeed be described as a mixture of two states. The first (second) state with an overall share of 80% (20%) can be interpreted as a "normal state" ("crisis state"). In both states, output and prices are found to decrease after monetary policy shocks. During "crisis times" the contraction ismuch stronger, as the peak effect is more than twice as large when compared to "normal times." In contrast, the effect of monetary policy shocks is less enduring in crisis times. Both findings provide a strong indication that the transmission mechanism is indeed different for the euro area during times of economic and financial distress.
economic and financial crisis
euro area
mixture VAR
monetary policy transmission
Document Type: 
Working Paper

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