Monetary policy evaluation. A counterfactual analysis based on dynamic factor models

Abstract

This paper complements the recent literature analysing the effects of the unconventional monetary stimuli applied after the Great Recession by proposing an intuitive and easy to implement method to evaluate different exit strategies towards a traditional monetary context. This approach, useful for central bankers or researchers interested in the effects of tapering, allows us to evaluate the consequences of a given monetary policy path on the future evolution of key macroeconomic indicators. Results based on this methodology provide a measurement of the differences in economic performance under contractionary and expansionary policies and support the recent success of monetary stimuli in boosting real indicators while having little effect on inflation.