Monetary policy transmission and structural changes

This paper surveys research from the ESCB ChaMP Research Network on how ongoing structural change is affecting monetary policy transmission in the euro area. It shows that transmission is state-dependent and varies systematically with changesin the sectoral composition of the economy, in its international integration, in financial conditions and in inflation regimes. More service-intensive economies exhibit weaker real responses to monetary tightening, while high-inflation environments areassociated with faster and stronger price pass-through, helping explain why the recent disinflation episode entailed relatively low output costs. The paper also shows that variations in leverage, supply shocks and energy-related disturbances alter theinflation-output trade-off and can make appropriate policy responses more contingent on the source and persistence of shocks. Finally, it reviews evidence that monetary policy can affect the supply side through innovation, reallocation and productivity, implying that structural change influences transmission and may itself be influenced by policy.