The Impact of Unconventional Monetary Policy on Economic Activity: Evidence from Europe

The aim of conducted research was to analyze the impact of unconventional monetary policy run by the European Central Bank following global financial crisis. The research comprises period between 2009 and 2021. The main aim in this study was to evaluate the real economic impact, measured by real gross domestic product, in response to change of selected monetary policy parameters. The study used vector error correction model (VECM) and impulse response function (IRF) to simulate economic activity change in the euro area in response to monetary policy shock defined as large scale asset purchase program carried out by the European Central Bank. In order to develop VECM model, the study considered variables illustrating dynamics in economic activity, inflation, polity rates, term spread, exchange rate, and monetary policy measures. The results provided evidence that unconventional monetary policy conducted by the European Central Bank had a positive influence on economic activity in the euro area. The course of the impulse response function described that the impact was rising quarter by quarter and reached the top in the fifth quarter after the shock had taken place. In the following period the impact declined but remained positive through entire simulated period.