The work aims to identify the shocks causing output contraction and inflation fluctuations in the euro area and the United States during the global financial crisis and the COVID-19 crisis and assess the contribution of monetary policy to the recovery of the two economies. In particular, the model used features an exogenous disturbance to capital utilization which allows to capture episodes of deep recessions caused by difficulties of physical capital in fully providing its contribution to production.
Model estimates show that, in both crises and in the two areas, disturbances to capital utilization are important drivers of output contraction but not inflation fluctuations. Monetary policies by the European Central Bank and the US Federal Reserve provided significant support to the recovery of economic activity and contributed to bring inflation towards the target.
