Economics

Monetary policy models: lessons from the Eurozone crisis

P. J. Gutiérrez-diez and T. Pál

This groundbreaking research by Pedro J. Gutiérrez-Diez and Tibor Pál explores the paradox of expansionary monetary policies amidst shrinking credit flows and stagnant economic activity in the Eurozone post-2007 crisis, utilizing a dynamic general equilibrium model to unpack the intricate web of debt-deflation dynamics.

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Playback language: English

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Abstract

This paper investigates the unusual combination of expansionary monetary and fiscal policies, decreasing credit flows, falling price levels, and sluggish real activity in the Eurozone after the 2007-2008 financial crisis. A dynamic general equilibrium model (DGEM) is proposed to explain the transmission mechanisms, debt-deflation channels, and the role of financial leverage. A vector error correction model (VECM) is then used to confirm theoretical predictions and analyze both short-term and long-term dynamics.

Publisher

Humanities & Social Sciences Communications

Published On

Oct 03, 2023

Authors

Pedro J. Gutiérrez-Diez, Tibor Pál

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