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Assessing Monetary Policy Effectiveness in Euro Area: A VAR - SVAR Framework

Wanderpepen, Arnaud
(2023)

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Wanderpepen_32321800_2023.pdf
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Wanderpepen_32321800_2023_Appendix1.pdf
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Details

Supervisors
Vrins, Frédéric
Faculty
Louvain School of Management
Degree label
Master [120] : ingénieur de gestion, à finalité spécialisée
Abstract
This thesis delves into the intricate relationship between monetary policy and inflation in the Euro Area through Vector Autoregressive (VAR) and Structural Vector Autoregressive (SVAR) models. By sidestepping traditional estimation techniques and adopting a recently developed statistical approach, based on independent structural shocks, we shed light on the dynamics of this relationship. The derived point estimates from the impulse response functions enable a straightforward comparison with economic theory and with the results obtained in similar studies through more conventional identification methods. Our findings reveal a persistent link between interest rate changes and inflation reduction, but with limited influence. The impact of monetary policy on inflation is not instant, but gradual due to complex transmission mechanisms. These insights suggest a need for comprehensive and flexible monetary policy approaches and consideration of diverse inflation drivers to achieve stable price levels.