SPEECH
Mind the step: calibrating monetary policy in a
volatile environment
Keynote speech by Fabio Panetta, Member of the Executive Board of
the ECB, at the ECB Money Market Conference
Frankfurt am Main, 3 November 2022
The euro area is facing a sequence of unprecedented supply shocks resulting from the pandemic and
Russia's aggression against Ukraine. These shocks have compounded each other and caused the current
spike in inflation. Price pressures have broadened as firms have sought to pass higher costs on to
consumers as the economy reopened.
As a result, the ECB has accelerated the adjustment of monetary policy to keep inflation expectations
anchored at levels consistent with its target. Across the last three Governing Council meetings, we have
increased our interest rates by 200 basis points. This is the fastest rate hike in the ECB's history.
Looking ahead, the medium-term inflation outlook presents clear upside risks in a general context of
extraordinary uncertainty about the future evolution of the European economy.
Today I will argue that, at present, the direction of monetary policy is clear. A further policy adjustment is
warranted in order to keep inflation expectations anchored and stave off second-round effects. However,
the calibration of our stance should not rely on a one-sided view of risks - especially as we continue
normalising our monetary policy in a highly uncertain economic environment. And it should remain focused
on medium-term inflationary developments.
We need to bring inflation back to our 2% target as soon as possible, but not sooner.
We might otherwise create unintended effects, achieving little reduction of inflation in the short term, but
causing excessive market volatility and a protracted economic slowdown beyond what is necessary to
stabilise inflation in the medium term.
Implementing the correct calibration of monetary policy will be challenging. We will need to carefully
consider the resilience of our economy, the implications of global monetary spillovers, and emerging
threats to financial stability.
Trade-offs in setting the appropriate monetary policy stance
In the current situation, the direction of our monetary policy is clear.
Inflation in the euro area is too high and will remain above our target for an extended period. Headline
1 ]
inflation reached 10.7% in October. Core inflation is around 5%.[
Monetary policy normalisation is necessary when repeated supply shocks drive inflation higher for longer.
[ 2 ]
It signals that the central bank will not tolerate a de-anchoring of inflation expectations, reducing the
likelihood of such a de-anchoring occurring. And it guards against the risk that monetary policy could
3 ]
exacerbate inflationary pressures by stimulating demand.[
But while the direction of the adjustment is clear, its calibration is not and its end point depends on the
evolving medium-term economic and inflation outlook.
The neutral interest rate provides limited guidance here. It is an asymptotic concept that describes the
point when interest rates are neither accommodative nor contractionary in a situation where growth is
around potential, inflation is not far from target and no transitory shocks are disrupting the inflation path.
But that is not the world in which we find ourselves.
4 ]
Moreover, the neutral rate is unobservable. As I have argued elsewhere,[ estimates of the neutral rate
are imprecise and widely dispersed. They are subject to considerable uncertainty in a post-pandemic
5 ]
world that has undergone structural change.[
Today, I find it more helpful to discuss the target-consistent terminal rate.
This is the level of the policy rate that - if reached at the end of a short normalisation phase and then held
constant - stabilises inflation at target by the end of the policy-relevant horizon in the absence of new
shocks. I prefer the concept of the target-consistent rate to that of the neutral rate because it emphasises
that we can gear our policy to a clear state-contingent reference in order to bring inflation back to target
within a clearly defined period.
Eurosystem staff regularly calculate estimates of the target-consistent terminal rate, which are an input
6 ]
into the preparation of our monetary policy meetings.[ But let me stress that these estimates are
conditional on the economic and inflation outlook. They need to be continually reassessed in the light of
incoming information.
Specifically, we need to navigate a complex set of risks to medium-term inflation.
7 ]
On the upside, we could face the emergence of what I have called "ugly" inflation.[ This arises when
above-target inflation de-anchors expectations, causing excessive wage and price-setting dynamics that
eventually fuel further inflation increases (the second-round effects).
At present, this risk is mostly driven by high energy prices and their pass-through to prices of other items.
Annual energy inflation is running at around 42%. Energy has been the main contributor to headline
inflation for the past 18 months (Chart 1). Higher energy input costs have contributed to extraordinarily
high food inflation. They have been a key driver of goods and services inflation (Chart 2). And by dragging
down the trade balance and weighing on the economic outlook, they are contributing to the depreciation of
the euro, further reinforcing inflationary pressures (Chart 3).
Chart 1
Contributions of components of euro area headline HICP inflation
(annual percentage changes and percentage points contributions)
Sources: Eurostat and ECB calculations.
Notes: NEIG stands for "non-energy industrial goods". The latest observation is for October 2022.
Chart 2
Contributions of energy-sensitive components to goods and services inflation in the euro
area
(annual percentage changes and percentage point contributions)
Sources: Eurostat and ECB staff calculations.
Notes: The term "energy-sensitive component" reflects items with a share of energy in direct costs above the average
share of energy across services items (left-hand panel) and non-energy industrial goods (NEIG) items (right-hand
panel). The latest observations are for September 2022.
Chart 3
Drivers of the euro-US dollar exchange rate
(cumulative changes since January 2022, percentage changes and percentage point contributions)
Sources: ECB and ECB calculations.
Notes: A decrease denotes a euro depreciation against the US dollar. The decomposition of exchange rate changes is
based on an extended two-country Bayesian vector autoregression (BVAR) model including ten-year euro area
overnight index swap rate, euro area stock price, EUR/USD, ten-year euro area overnight index swap-US Treasury
spread, US stock prices and the relative Citi commodities terms-of-trade index in the euro area compared to the
United States. An adverse euro area terms-of-trade shock is assumed to depreciate the euro against the dollar,
reduce euro area equity prices, and increase euro area yields and yield spreads against the United States.
Identification via sign and narrative restrictions, using daily data. The latest observation is for 24 October 2022.
So far, inflation expectations have remained anchored and the risk of an incipient wage-price spiral in the
euro area has been contained. Nominal negotiated wage growth has ticked up recently but is still far from
8 ]
compensating for the drop in real incomes caused by higher inflation.[ And the outlook for wage growth
9 ]
and unit labour costs remains consistent with our target overall.[ But we need to remain extremely
in view of prolonged high inflation, which increases the likelihood of a pass-through to wage growth
[vigilant 10
], especially as labour markets are now tighter than before the pandemic.
But other forces may increasingly push in the opposite direction and contain the risk of second-round
effects, as what I have dubbed "bad" inflation - the inflation resulting from supply shocks - compresses
real incomes.
The reduction in real wages and purchasing power is weakening domestic demand, with several leading
indicators already pointing to a likely contraction in economic activity, starting from the last quarter of this
The euro area PMI composite output index fell in October to its lowest level since November 2020,
[year. 11 ] 12 ]
with forward-looking indicators of activity particularly weak.[ Consumer confidence plummeted to
13 ]
historical lows.[ And financial and credit indicators also point to significant downside risks to GDP
14 ]
growth (Chart 4).[
Chart 4
Downside risks to euro area real GDP growth
Lower tail of the distribution of real GDP growth forecasts for Q1 and Q3
2023 based on "GDP-at-risk" models
(quarter-on-quarter change in percentage points)
Source: ECB calculations.
Notes: For each horizon, the chart shows the median of estimates of the lower quantile (10th percentile) forecast
across the suite of "GDP-at-risk" models maintained by ECB staff, as well as the interquartile range to account for
model uncertainty. These estimates are predicated mainly on developments in financial conditions, credit, risk, and the
macroeconomy. Forecasts are conditional on financial data up to mid-October 2022 and real economy indicators up to
the end of September 2022.
These forces pushing on the downside might be reduced if supply bottlenecks continue to ease (Chart 5)
15 ]
and energy commodity and electricity prices continue to fall from their highs (Chart 6).[ But this would
then also improve the inflation outlook and reduce the likelihood of "ugly" inflation taking hold.
Chart 5
Easing of supply chain bottlenecks
PMI suppliers' delivery times (left panel) and Global Supply Shortages
Index (right panel)
(diffusion indices)
Sources: S&P Global, Markit and ECB staff calculations.
Notes: The Global Supply Shortages Index measures how many selected items have been in short supply against
their long-run average for each month. The long-run average refers to value 1 of the index. The shaded
minimummaximum range refers to the 5th-95th percentile range across 20 items (e.g. chemicals, electrical items, packaging,
steel and textiles). The latest observation are for September 2022 and October 2022 (Flash PMI estimates for the
United Kingdom and the euro area).
Chart 6
Spot prices of oil, gas, coal and electricity
(EUR/MWh for gas and electricity (left-hand scale), USD/barrel for oil (right-hand scale))
Sources: Refinitiv, HWWI, Energy Intelligence and ECB staff calculations.
Note: The latest observation is for October 2022.
To sum up, the implementation of monetary policy presents us with a difficult trade-off. On the one hand,
our need to ensure that inflation expectations remain anchored speaks for targeting the upper part of the
range of estimates of the target-consistent terminal rate. And this range would move higher if upside risks
to medium-term inflation materialised.
But, on the other hand, in setting the monetary policy response we need to keep basing our decisions on
the latest evidence and factor in downside risks to the economic outlook.
Policy normalisation, transmission lags and global spillovers
In recent months, the public debate has stressed the risks of doing too little to curb inflation, since this
would require a more painful future adjustment. But this should not make us underappreciate the risk of
doing too much.
First, we should bear in mind that it takes time before the full impact of our measures is felt in the
16 ]
economy.[ Moreover, monetary policy is transmitted to different variables with different lags.
It immediately affects market expectations and financial market conditions through bond yields, equity
prices and exchange rates. Since we started normalising monetary policy at the end of 2021, the one-year
forward real rates have moved significantly higher across the entire term structure (Chart 7) and the
oneyear forward real rate one year ahead is now in positive territory. Likewise, nominal and real ten-year rates
have increased by around 300 and 250 basis points respectively (Chart 8).
Chart 7
Change in euro area forward real interest rates
(percentage points)
Sources: Bloomberg, Refinitiv and ECB calculations.
Notes: Real forward rates are calculated by subtracting the inflation-linked swap forward rates from the nominal
overnight index swap forward rates for each maturity. The latest observation is for 20 October 2022.
Chart 8
Ten-year real, nominal and inflation-linked swap rates for the euro area
(percentages per annum)
Sources: Refinitiv and ECB calculations.
Note: The latest observation is for 20 October 2022.
Crucially, however, it takes longer for our decisions to be transmitted to the real economy through changes
in lending conditions and, subsequently, demand and prices. The debate should thus not be distorted by
an excessive focus on short-run inflationary developments, which cannot be controlled by monetary policy.
The full impact of our measures will likely reach the economy when activity and inflation are already on a
17 ]
declining path.[ This implies that our tightening will need to end when inflation is still above our target.
Second, we need to factor in global monetary policy spillovers when defining the domestic stance.
With central banks across advanced economies adjusting their policies simultaneously (Chart 9), they
could accentuate each other's policy impacts if they do not sufficiently factor in the feedback loop they
18 ]
create.[ ECB analysis finds that a tightening by the Federal Reserve System generates spillovers to
19 ]
euro area real activity and inflation that are comparable to its effects on the US economy.[
Chart 9
Financial conditions indices in advanced economies and emerging market economies
(standardised indices)
Sources: Refinitiv, Bloomberg and ECB staff calculations.
Notes: National financial conditions indices are aggregated using GDP purchasing power parity shares. The latest
observations are for 6 October 2022.
It is sometimes argued that domestic inflation having a large global component should mean that domestic
monetary policy needs to be tightened more forcefully to compensate for this weakened grip on prices. But
if central banks across advanced economies are simultaneously tightening monetary policy - as is the
20 ]
case today - the opposite is true.[
If central banks do not fully factor in the effects of other central banks' policies, the current phase of global
adjustment may give way to a more severe slowdown than anticipated. In recent decades, episodes of
highly synchronised global monetary policy tightening have been associated with subsequent global
recessions (Chart 10).
Chart 10
Inflation surges, tightening synchronisation and global recessions
(percentages of countries)
Sources: ECB calculations, BIS data and Haver Analytics.
Notes: The global "inflation surges" index (red dashed line) shows the share of countries which, at time t, are
simultaneously experiencing: (1) year-on-year inflation that is higher than at time t-1; and (2) year-on-year inflation that
is above a certain threshold. In this case, the threshold is given by the average of the year-on-year inflation in the
post-Volcker period, from the first quarter of 1984 to the second quarter of 2022. The global "tightening
synchronisation" index (blue solid line) is constructed using BIS data on the policy rates set by central banks and
shows the share of countries which are tightening at time t. Global recessions are periods when: (1) annual growth of
global GDP per capita is negative or close to zero; and (2) a high share of countries are in a technical recession. The
latest observations are for the second quarter of 2022.
Such a scenario could have particularly negative implications for the euro area. Our economy is not only
more vulnerable than others to the energy crisis, it is also more open than economies such as the United
States, China and Japan, and thus more exposed to a global recession. And because it is less flexible
the US economy, reversing course may be more difficult if demand and production weaken too much.
[than 21 ]
Avoiding unintended effects in a volatile market environment
Incorrectly calibrating our monetary policy could also have unintended effects for financial stability and the
transmission of our monetary policy.
The highly uncertain outlook has increased the sensitivity of market rates to new developments and shifts
in risk sentiment. In turn, higher rates are exacerbating risk aversion, exposing the vulnerabilities of certain
22 ]
highly leveraged segments - such as residential property markets[ - and some types of non-bank
financial intermediaries[ ]. These segments are vulnerable to adverse loops, with falling prices and rising
rates feeding into higher debt refinancing costs, especially as falling real incomes make those costs less
affordable.
This market volatility is being compounded by global financial spillovers (Chart 11). These come mainly
24
from the United States[ ], but were also visible in the reaction of euro-denominated yields to the recent
episode of market repricing in the United Kingdom.
Chart 11
Global component in yields
Correlation of sovereign bond yields in advanced economies,
expectations components and term premia
(correlation coefficient)
Sources: Datastream and Haver Analytics.
Notes: The sample consists of ten advanced economies (Australia, Canada, Denmark, euro area, Japan, New
Zealand, Sweden, Switzerland, United Kingdom and United States). The bilateral correlation coefficients are averaged
across these countries and time periods. The term premia and expectations components are the average of estimates
from three models (dynamic Nelson-Siegel, rotated dynamic Nelson-Siegel and dynamic Svensson-Soderlind). The
latest observations are for 21 October 2022 (daily data).
In the euro area, an additional source of volatility is the risk of financial fragmentation along national lines,
which can impair the homogenous transmission of monetary policy throughout the euro area.
The current environment therefore requires us to be prudent in adjusting our monetary policy across all
instruments. There are three key considerations here.
First, our decisions and communication on the pace of normalisation should avoid amplifying market
volatility.
There is a case for frontloading our policy adjustment given the need to keep expectations anchored,
especially in view of the very accommodative stance from which normalisation started. But such
frontloading should remain commensurate to the benefits and risks it creates.
When it comes to managing inflation expectations, ECB staff analysis finds that the benefits of surprising
25 ]
markets with bigger-than-expected rate increases is limited in the euro area.[ And if these bigger-than-
expected increases are interpreted as signalling a higher terminal rate, rather than simply frontloading the
normalisation, we could have a stronger impact on financing conditions - and ultimately on economic
activity - than intended.
Additionally, a bigger-than-expected rate increase may heighten volatility and have a stronger impact in
the current highly leveraged environment after a decade of very low rates and ample liquidity. So when
calibrating our stance, we need to pay close attention to ensuring that we do not amplify the risk of a
26 ]
protracted recession or trigger market dislocation.[
Second, we must be clear about the sequencing of the normalisation process. We should avoid "cliff
effects", continually monitor the market response to our measures and consider the feedback between our
different instruments.
Currently, our policy rate remains a suitable marginal instrument of normalisation. It is the instrument we
know best. We have a comparatively limited understanding of the effects of reducing the size of our
27 ]
balance sheet.[
The size of our balance sheet will be significantly reduced as targeted longer-term refinancing operations
(TLTROs) mature and banks likely make early repayments after the decision we took last week to adapt
the TLTROs' terms and conditions to the current monetary policy context.
We should take the necessary time to assess the impact of our rate hikes and of phasing out the TLTROs.
As we normalise our monetary policy, we should expect bank lending conditions to tighten. What we need
to avoid, though, is a sudden stop in the supply of credit to the broad economy.
We should ensure that TLTRO repayments have been absorbed before we stop fully reinvesting the
principal payments from maturing securities purchased under our purchase programmes. And when
considering how we would then reduce the size of our bond portfolios, a controlled reduction - whereby
only redemptions above a cap are not rolled over - is preferable to active sales, which may unsettle
28 ]
markets in an already volatile financial environment.[
Third, we must ensure the smooth transmission of our stance as we normalise monetary policy.
Maintaining ample liquidity in the system will help ensure smooth money market functioning. This will allow
us to continue tightly steering money markets through changes in our deposit facility rate.
But preserving smooth transmission also means being ready to intervene in a timely manner to counter
unwarranted market dysfunctions, should they arise.
Our reinvestment flexibility under the pandemic emergency purchase programme - alongside the
availability of the Transmission Protection Instrument, if required - protects the transmission of our
monetary policy to all parts of the euro area, allowing us to set the appropriate stance. Recent months
have shown that a credible ex ante commitment helps to establish a good market equilibrium, where
higher yields do not drive spreads to higher levels that are disconnected from fundamentals.
We also need to stand ready to address collateral issues. Collateral scarcity has recently impaired the
29 ]
pass-through of our policy rates to repo rates.[ The change in TLTRO III conditions should help alleviate
tensions in the repo market[ ], but we will continue to monitor the situation closely.
The importance of a consistent policy mix
As recently seen in other economies, an inconsistent policy mix can prove destabilising. So a successful
normalisation process requires other policies to be consistent with monetary policy. For instance,
welldesigned energy and fiscal policies can make a key contribution to dampening short-term inflationary
31 ]
pressures, thereby helping to keep inflation expectations anchored[ and reducing the amount of
monetary tightening necessary.
To take a concrete example, the measures that have been taken to find alternatives to Russian gas,
reduce gas demand and refill gas storage are likely playing an important role in bringing down gas prices.
Likewise, joint initiatives at European level, common purchases and the redistribution of surplus energy
sector profits can mitigate the impact of supply disruptions on energy prices. At the same time, energy
policies should preserve price incentives and support energy efficiency.
Fiscal policies should aim to cushion the impact on the most exposed and fragile households and firms,
while not hindering the necessary trend reduction of energy demand and adding to inflationary pressures.
At the same time, they should protect economic potential and ensure that the energy shock does not
permanently reduce productive capacity. Just as excessively high energy demand would risk keeping
inflation high for longer, so would a slump in economic potential.
In response to the pandemic, Europeans acted together with consistent policies to protect productive
32 ]
capacity during the downturn.[ To tackle the energy shock effectively, we can take inspiration from some
of the EU pandemic-era instruments - such as SURE - to protect jobs and businesses that may be forced
to temporarily reduce their activity. Common interventions at European level would preserve a level
playing field, avoiding competitive distortions that would otherwise be detrimental to economic efficiency
and the integrity of the Single Market.
Beyond targeted support in the short term, however, fiscal policy will need to focus on investment to
reduce the European economy's exposure to supply shocks, strengthen its strategic autonomy and
support potential growth. Here we could take inspiration from the Next Generation EU (NGEU) instrument
and move beyond reshuffling existing funds in the financing of Repower EU, matching additional
33 ]
investment and reform needs with adequate resources.[
But we should also ensure that we are implementing, in full, the agreed investments and reforms that are
tied to NGEU. This will contribute to economic resilience and debt sustainability, which are crucial in view
of the prevailing interest rates and growth outlook.
Conclusion
Let me conclude.
We find ourselves in an exceptionally volatile environment, with multiple and complex risks for the inflation
outlook and the appropriate monetary policy response.
We are normalising our monetary policy to keep inflation expectations anchored and bring inflation back to
2% over the medium term.
But we cannot ignore the sizeable challenges that we are facing.
So we must calibrate our monetary policy carefully to ensure that inflation durably returns to our target,
while also guiding market expectations and limiting excess volatility.
Our policy stance must remain evidence-based and adapt to changes in the medium-term inflation
outlook, avoiding an excessive focus on short-run developments and fully taking into account the risks
emanating from the domestic and global economic and financial environment.
This approach will allow us to successfully navigate the risks we face while avoiding the danger of tripping
over unintended effects.
Let's therefore mind the step in adjusting our monetary policy, so we can proceed steadily through the
current shocks and bring the economy back to price stability and solid growth.
Annexes
3 November 2022
Slides
ENGLISH

1.
When excluding energy, food, alcohol and tobacco. Core inflation is calculated by excluding more volatile
components from headline inflation.
2.
Panetta, F. (2022), " Normalising monetary policy in non-normal times ", speech at a policy lecture hosted
by the SAFE Policy Center at Goethe University and the Centre for Economic Policy Research, 25 May.
3.
Lagarde, C. (2022), " Monetary policy in the euro area ", Karl Otto Pöhl Lecture organised by Frankfurter
Gesellschaft für Handel, Industrie und Wissenschaft, 20 September.
4.
Panetta, F. (2022), op.cit.
5.
See Weber, A., Lemke, W. and Worms, A. (2008), "How useful is the concept of the natural rate for
monetary policy?", Cambridge Economic Journal, October, Vol. 32, No 1, January, pp. 49-63.
6.
For instance, recent estimates by Banco de España staff suggest that the median value of the target-
consistent terminal rate across a suite of macroeconomic models lies in a range between 2.25% and
2.5%. See Hernández de Cos, P. (2022), " Monetary policy in the euro area: where do we stand and where
are we going? ", XXI Congreso de Directivos CEDE, Bilbao, 29 September.
7.
Panetta, F. (2021), " Patient monetary policy amid a rocky recovery ", speech at Sciences Po, 24
November.
8.
In the euro area, the pick-up of wage growth has been more moderate and gradual than in the United
States. The annual growth rate of compensation per employee is still distorted by the impact of the
government measures to prevent job losses during the pandemic. Negotiated wage growth, which is less
affected by these measures, stood at 2.4% (including volatile one-off payments) in the second quarter of
2022.
9.
To be consistent with the 2% inflation target under typical conditions, nominal wage growth should be
equal to productivity growth plus 2%, which the September ECB staff projections expect to be the case in
2024.
10.
Inflation can play a formal or an informal role in wage setting. For more than half of the private sector
employees in the euro area, inflation does not play a formal role in wage setting - but is an important
factor in wage negotiations especially if inflation is high. While indexation of wages to inflation applies only
to around 3% of private sector employees in the euro area, inflation plays a formal role in wage setting for
one fifth of euro area private sector employees. Countries in which only minimum wages are indexed to
inflation account for another fifth of private sector employees. For details, see Koester, G. and Grapow, H.
(2021), " The prevalence of private sector wage indexation in the euro area and its potential role for the
impact of inflation on wages ", Economic Bulletin, Issue 7, ECB.
11.
Excluding the pandemic lockdown months, this was the lowest level since April 2013. See S&P Global
Flash Eurozone PMI (2022), " Eurozone economic contraction intensifies in October ", October.
12.
The weakening is especially pronounced for indicators of new business and new orders.
13.
The series starts in January 1985. See European Commission (2022), " Flash Consumer Confidence
Indicator ", 21 October.
14.
Downside risks are reflected in Chart 3 by depicting the lower tail (specifically the 10th percentile) of the
distribution of quarterly real GDP growth forecasted for the first and third quarters of 2023 respectively.
Notably, the current estimates are well below the unconditional estimate which reflects average tail risks
over a long horizon. An analysis of the underlying drivers suggests that the intensification of the downside
risks to real GDP growth can be traced back predominantly to heightened financial and geopolitical risk, a
bleaker macroeconomic outlook, and some deterioration in credit and financial conditions.
15.
Supply bottlenecks have started to ease in recent months and orders-to-inventory ratios have been falling
rapidly. European gas prices have also fallen sharply in recent weeks.
16.
Model-based analysis by ECB staff suggests that, on average, the impact on inflation of a 100 basis point
policy rate shock builds up gradually over time to reach its peak impact during the second year following
the initial shock. See Lane, P. (2022), " The transmission of monetary policy ", speech at the SUERF,
CGEG|COLUMBIA|SIPA, EIB, SOCIÉTÉ GÉNÉRALE conference on "EU and US Perspectives: New
Directions for Economic Policy", 11 October.
17.
ECB staff estimates that the downward impact on GDP growth coming from policy normalisation is on
average 1 percentage point per year until 2024, while the downward impact on inflation increases
gradually, reaching 1 percentage point in 2024. The estimated impact refers to the average across a set of
models used by the ECB for policy simulations, including the NAWM-II model (Coenen, G., Karadi, P.,
Schmidt, S. and Warne, A. (2018), " The New Area-Wide Model II: an extended version of the ECB's micro-
founded model for forecasting and policy analysis with a financial sector ", Working Paper Series, No 2200,
ECB, November (revised December 2019)), the ECB-BASE model (Angelini, E., Bokan, N., Kai, C.,
Ciccarelli, M. and Zimic, S. (2019), " Introducing ECB-BASE: The blueprint of the new ECB semi-structural
model for the euro area ", Working Paper Series, No 2315, ECB, September), and the MMR model
(Mazelis, F., Motto, R. and Ristiniemi, A. (2022), "Monetary policy strategies in a low interest rate
environment for the euro area", forthcoming).
18.
Obstfeld, M. (2022), " Uncoordinated monetary policies risk a historic global slowdown ", Realtime
Economics Blog, Peterson Institute for International Economics, 12 September.
19.
Estimates are obtained based on a sample spanning 1991 to 2019, using high frequency-based US
monetary policy shocks (sum of conventional, Odyssean forward guidance and quantitative easing) in
monthly smooth local projections (see Jarociński, M. (2021), " Estimating the Fed's Unconventional Policy
Shocks ", Working Paper Series, No 2585, ECB, August (revised June 2022)).
20.
Obstfeld, M. (2022), op. cit.
21.
Recent analyses show that the euro area lags notably behind the United States in terms of labour market
efficiency (although levels for individual euro area countries vary, see Chart 1 in Sondermann, D. (2018),
"Towards more resilient economies: The role of well-functioning economic structures", Journal of Policy
Modeling, Vol. 40, No 1, pp. 97-117). Productivity growth has also generally been lower in the euro area
than in the United States for some time (see Chart 7 in Masuch, K. et al. (eds.) (2018), " Structural policies
in the euro area ", Occasional Paper Series, No 210, ECB, June). These factors may limit the euro area's
relative capacity to bounce back from a recession.
22.
ESRB (2022), " Warning