SUERF Policy Brief - No 839, April 2024

Monetary policy transmits to the real economy by affecting financial conditions which themselves are taken into consideration in the conduct of monetary policy to stabilize inflation and the real economy. [...] www.suerf.org/publications/ SUERF Policy Brief, No 839 1 Financial stability considerations in the conduct of monetary policy Expanding on the empirical quantile regression framework of Chavleishvili and Kremer (2021) to include monetary policy shocks, inflation and financial vulnerabilities, we examine the interaction of monetary policy with financial stability conditions and the real economy. [...] Financial stability indicators and identification of monetary policy shocks Our data consist of a set of aggregate euro area macro-financial and monetary policy variables, starting in the beginning of 2002 and running through the end of June 2019 at monthly frequency. [...] In our empirical macro-financial estimation framework, we incorporate monetary policy effects using monetary policy surprises in risk-free interest rates between one month and ten years over a narrow time window (covering the press release and the subsequent press conference) around the communication of ECB monetary policy decisions contained in the “Euro Area Monetary Policy Event-Study Database”. [...] www.suerf.org/publications/ SUERF Policy Brief, No 839 8 Financial stability considerations in the conduct of monetary policy About the authors Paul Bochmann is a Financial Stability Expert in the Systemic Risk and Financial Institutions Division of the European Central Bank.