Is ECB Monetary Policy More Powerful During Expansions?

28 Pages Posted: 31 Jul 2019

Date Written: December 12, 2018


This paper tests whether the effects of ECB monetary policy vary over different phases of the business cycle. It uses local projections to estimate the state-dependent impulse responses of economic activity and prices to monetary policy shocks. These are identified through high-frequency financial market responses after Governing Council meetings. While the impact of monetary policy on economic activity is roughly similar during recessions and expansions, prices respond more strongly during booms. The result holds when the state of the economy is based on measures of resource utilization, rather than on GDP growth rates. Nominal wages also respond more strongly to monetary policy during expansions and when there is no slack in the economy. The empirical findings are consistent with the presence of downward rigidity on nominal wages.

Keywords: monetary policy, business cycle

JEL Classification: E52, E32

Suggested Citation

Cecioni, Martina, Is ECB Monetary Policy More Powerful During Expansions? (December 12, 2018). Bank of Italy Temi di Discussione (Working Paper) No. 1202, Available at SSRN: or

Martina Cecioni (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

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