Shocks, Structures or Monetary Policies? The Euro Area and US After 2001

Lawrence Christiano, Roberto Motto, Massimo Rostagno

NBER Working Paper No. 13521
Issued in October 2007
NBER Program(s):Economic Fluctuations and Growth, , Monetary Economics

The US Federal Reserve cut interest rates more vigorously in the recent recession than the European Central Bank did. By comparison with the Fed, the ECB followed a more measured course of action. We use an estimated dynamic general equilibrium model with financial frictions to show that comparisons based on such simple metrics as the variance of policy rates are misleading. We find that - because there is greater inertia in the ECB's policy rule - the ECB's policy actions actually had a greater stabilizing effect than did those of the Fed. As a consequence, a potentially severe recession turned out to be only a slowdown, and inflation never departed from levels consistent with the ECB's quantitative definition of price stability. Other factors that account for the different economic outcomes in the Euro Area and US include differences in shocks and differences in the degree of wage and price flexibility.

download in pdf format
   (664 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13521

Published: Christiano, Lawrence & Motto, Roberto & Rostagno, Massimo, 2008. "Shocks, structures or monetary policies? The Euro Area and US after 2001," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2476-2506, August. citation courtesy of

Users who downloaded this paper also downloaded* these:
Christiano, Motto, and Rostagno w13502 Two Reasons Why Money and Credit May be Useful in Monetary Policy
Christiano, Trabandt, and Walentin w16074 DSGE Models for Monetary Policy Analysis
Christiano, Ilut, Motto, and Rostagno w16402 Monetary Policy and Stock Market Booms
Christiano, Motto, and Rostagno w10255 The Great Depression and the Friedman-Schwartz Hypothesis
Blanchard, Ostry, Ghosh, and Chamon w21619 Are Capital Inflows Expansionary or Contractionary? Theory, Policy Implications, and Some Evidence
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us