Title page
Contents
Abstract 2
Non-technical summary 3
1. Introduction 5
2. ECB-(RE)BASE 7
2.1. Modified financial block equations for ECB-(RE)BASE 7
2.2. MCE in WAPRO and consumption-income nexus 10
2.3. Expectations in PAC equations 14
2.4. Dynare's computational environment for ECB-(RE)BASE 16
3. Macroeconomic propagation across alternative expectations settings 17
3.1. Alternative expectations settings 18
3.2. Monetary policy interventions 19
3.3. Supply-side shocks 24
3.4. Demand shocks 26
4. Macroeconomic volatility since the pandemic and expectation formation 28
4.1. Scenario design: shock calibration and anticipation modalities 28
4.2. Supply and demand conditions during the pandemic emergency 29
4.3. Post-pandemic inflation surge 30
5. Conclusion 32
References 51
Appendix 53
A. Background charts 53
B. Tables 59
C. Updates to the ECB-BASE Model Post-Working Paper Publication 59
Table 1. The role of expectations across model blocks 18
Table 2. Selected shocks from the filtered baseline data from ECB-BASE 28
Table 3. The balanced growth path 59
Figure 1. Monetary policy shock (100bps) 21
Figure 2. Monetary policy shock (100bps) 34
Figure 3. Monetary policy shock (100bps) 35
Figure 4. Monetary policy shock (100bps) - exogenous exchange rate and spreads 36
Figure 5. Anticipation of monetary policy shock (100bps) - exogenous exchange rate and spreads 37
Figure 6. CB asset purchase shock (10% of GDP) 38
Figure 7. Anticipation of CB asset purchase shock (10% of GDP) 39
Figure 8. Productivity shock (1% potential GDP increase) - exogenous exchange rate and spreads 40
Figure 9. Anticipation of productivity shock (1% potential GDP increase) - exogenous exchange rate and spreads 41
Figure 10. Oil price shock (10%) - exogenous exchange rate and spreads 42
Figure 11. Anticipation of oil price shock (10%) - exogenous exchange rate and spreads 43
Figure 12. Public consumption shock (1% of GDP) - exogenous exchange rate and spreads 44
Figure 13. Anticipation of public consumption shock (1% of GDP) - exogenous exchange rate and sprea 45
Figure 14. Other main demand shocks (1% of GDP) - exogenous exchange rate and spreads 46
Figure 15. Scenario construction from underlying shocks - Backward with financial and UIP MCE 47
Figure 16. The pandemic scenario under different expectations settings (unconstrained monetary policy) 48
Figure 17. The inflation surge scenario under different expectations settings (unconstrained monetary policy) 49
Figure 18. The combined scenario under different expectations settings 50
Figure 19. Structural model wedges in scenario vs data - Backward with financial and UIP MCE 53
Figure 20. Scenario construction via underlying shocks - Hybrid MCE 54
Figure 21. Scenario construction via underlying shocks - Full MCE 55
Figure 22. The pandemic leg of the scenario under different expectations settings 56
Figure 23. The price surge leg of the scenario under different expectations settings 57
Figure 24. The combined scenario under different expectations settings (unconstrained monetary policy) 58