Monetary policy under economic uncertainty: Evidence from the Euro Area

Beschreibung

This brief examines the impact of economic uncertainty on the effectiveness and transmission of monetary policy, focusing particularly on the euro area. After discussing market- and news-based uncertainty indicators, we examine how uncertainty interacts with conventional and unconventional monetary policy tools. Our findings reveal that conventional measures, such as interest rate adjustments, are significantly less effective during periods of high uncertainty. In contrast, unconventional tools, particularly quantitative easing, maintain their effectiveness. These results emphasize the importance of tailoring monetary policy strategies to prevailing levels of uncertainty and highlight the crucial role of central bank communication in improving policy transmission.