TY  - JOUR
AU  - Christiano,Lawrence
AU  - Motto,Roberto
AU  - Rostagno,Massimo
TI  - Shocks, Structures or Monetary Policies? The Euro Area and US After 2001
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13521
PY  - 2007
Y2  - October 2007
UR  - http://www.nber.org/papers/w13521
L1  - http://www.nber.org/papers/w13521.pdf
N1  - Author contact info:
Lawrence Christiano
Department of Economics
Northwestern University
2001 Sheridan Road
Evanston, IL 60208
Tel: 847/491-8231
Fax: 847/491-7001
E-Mail: l-christiano@northwestern.edu

Roberto Motto
European Central Bank
Postfach 16 03 19
D-60066 Frankfurt am Main
GERMANY
E-Mail: roberto.motto@ecb.int

Massimo Rostagno
European Central Bank
Postfach 16-03-19
D-60066 Frankfurt am Main
GERMANY
E-Mail: Massimo.Rostagno@ecb.int
AB  - 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.
ER  -