Evaluating the Impact of Monetary Policy Shocks on Inflation Dynamics: An Empirical Analysis of the Eurozone (2024-2026)
Keywords:
Monetary Policy, Inflation Dynamics, Eurozone Economics, Vector Autoregression, Interest Rates, Economic Recovery, Heterogeneous Economies, Financial StabilityAbstract
This study investigates the dynamic relationship between monetary policy shocks and inflation drivers within the Eurozone, employing a vector autoregressive (VAR) model to capture the intricate feedback mechanisms. We utilize monthly data from January 2010 to December 2023, focusing on interest rates, inflation rates, and output gap metrics. The empirical analysis reveals that while monetary easing significantly reduces inflation in the short term, its long-term effects are mitigated by rising inflation expectations among consumers and businesses. Additionally, our findings suggest asymmetries in the inflation response to policy shocks across different member states, underlining the importance of tailored monetary measures. These insights carry crucial implications for policymakers aiming to stabilize inflation while fostering economic growth in a post-pandemic context.
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