Time-Varying Effects of ECB Policy Announcements

We use a factor-augmented VAR with time-varying parameters to study the transmission of monetary policy shocks and central bank information shocks associated with ECB announcements. We find time-variation in the volatilities of monetary policy shocks and information shocks and in the transmission of these shocks to industrial production and prices. Monetary policy shocks and information shocks both exerted temporarily weaker effects on industrial production around 2010, at the height of the European sovereign debt crisis. The effect of information shocks on prices remained relatively stable, while policy shocks shocks gave rise to increasingly larger price responses until 2015. Euro area countries responded more heterogeneously to information shocks during the European sovereign debt crisis