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Drivers of large recessions and monetary policy responses

Author

Listed:
  • Giovanni Melina

    (International Monetary Fund)

  • Stefania Villa

    (Bank of Italy)

Abstract
Shocks to capital utilization are introduced into a structural macroeconomic closed-economy model with financial frictions to capture disruptions to the ability of the capital stock to provide capital services used in production. Estimates for the euro area and the United States show that these shocks were among the most important drivers of the output contraction during the Global Financial Crisis and the COVID-19 crisis, while financial shocks were more significant only during the Global Financial Crisis. Thanks to the timely and strong intervention of the European Central Bank and the US Federal Reserve, monetary policy shocks exerted a sizeable and positive contribution to output and inflation during the COVID-19 crisis.

Suggested Citation

  • Giovanni Melina & Stefania Villa, 2023. "Drivers of large recessions and monetary policy responses," Temi di discussione (Economic working papers) 1425, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_1425_23
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    More about this item

    Keywords

    COVID-19; Global Financial Crisis; Great Lockdown; monetary policy; capital utilization;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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