Impact Of Monetary Policy Shocks Research Articles

Revisiting the Macroeconomic Effects of Monetary Policy Shocks*

This study re‐evaluates the macroeconomic impact of monetary policy shocks in the United States using the proxy‐SVAR approach of Gertler and Karadi (American Economic Journal: Macroeconomics, 2015, 7, 44–76). Despite increased credit costs and the presence of the credit channel, our analysis reveals modest effects on economic activity post‐mid‐1980s. This robust finding holds across various inference methods and sample considerations. A counterfactual analysis within the framework of Bernanke, Gertler, and Gilchrist (1999, Handbook of Macroeconomics, Elsevier) suggests that a stronger response to inflation in monetary policy execution may explain the subdued impact of shocks, offering valuable insights for policy refinement and understanding the dynamics of economic activity.

The impact of monetary policy shocks — Do not rule out central bank information effects or economic news

This paper reassesses the impact of monetary policy and central bank information shocks while accounting for the influence of economic news. We regress a set of monetary policy surprises on a measure of economic news and incorporate these new instruments into an SVAR model. Furthermore, we distinguish between the two shocks via sign restrictions on the instruments’ impulse response functions. Our findings indicate significantly stronger and more enduring economic effects for monetary policy shocks, while the economic effects of central bank information shocks are weaker, if not vanish entirely. Nevertheless, persistent financial effects prevent us from completely dismissing the existence of central bank information effects. Consequently, it is important to account for both the effects of central bank information shocks and economic news in monetary policy settings.

Differential Impact of Monetary Policy Shocks on High-Tech vs. Low-Tech Firms

Differential Impact of Monetary Policy Shocks on High-Tech vs. Low-Tech Firms

The impact of monetary policy shocks on net worth and consumption across races in the United States

The aim of this paper is to determine whether monetary policy has a heterogeneous impact on net worth and consumption across races in the United States by applying several empirical methodologies and combining macro and micro data. The results suggest that an expansionary monetary shock increases the race gap in the short run in terms of net worth and that this is explained by differences in portfolio composition, especially between black and white households. Consequently, the heterogeneous wealth effect among these racial groups means that white households retain a higher elasticity than some minorities with respect to different forms of consumption as a consequence of a monetary policy shock. Although the heterogeneous effects of monetary policy across race are primarily explained by the different observable characteristics of households, a non-negligible part of this heterogeneity could be explained by the credit constraints faced by racial minorities that determine the composition of their wealth.

The effect of monetary policy shocks on industrial output in Afghanistan

Purpose- This study examines the impact of monetary policy shocks on industrial output in Afghanistan. Quarterly secondary data were collected for the period from 2003 to 2021 from various official sources such as the Statistical Bulletin of the Central Bank of Afghanistan, the International Monetary Fund, and the World Bank. Methodology- This study used a three-stage procedure. The first stage involved testing the stability of the variables to be included in the model. The second stage involves selecting the optimal lag length using various lag length criteria. Finally, the Vector Error Correction (VECM) model was used to determine if there were any short-run correlations or dynamics among the variables. The study also conducted some post-tests to confirm the validity and robustness of the regression model. Findings- The results of the long-run vector error correction model show that there is a long-run causality running from monetary policy rate, broad money supply, inflation, exchange rate, and a commercial bank loan to the industrial sector. So, there was a speed of adjustment from the short-run to the long-run equilibrium. However, the Wald test confirmed that the short-run causality runs from the explanatory variables to the dependent variable. Commercial bank credit to the industrial sector was found to cause a change in industrial production in all six lag periods. The results were further supported by the Granger causality test. Shocks in commercial bank lending to the industrial sector were found to have no significant effect on industrial output. However, the performance of the industrial sector was the main cause of the flow of commercial banks' credit to the industrial sector. Conclusion- The study recommends that monetary policy should proceed with extreme caution in managing the exchange rate. The study also recommends that the Central Bank of Afghanistan should encourage commercial banks to offer credit to the industrial sector at low-interest rates. Keywords: Monetary policy shocks, industrial output, Vector Error Correction Model (VECM), Granger Causality Test, Afghanistan. JEL Codes: E52, E32, L60

Consumption heterogeneity and monetary policy in an open economy

We incorporate two types of agents (Ricardian versus Keynesian) into a standard open economy macro model. We find that consumption heterogeneity has major implications for the impact of monetary policy shocks, the international transmission mechanism, and the design of optimal monetary policy. With sticky prices, the existence of Keynesian agents causes a spillover of shocks across countries, and leads to the interdependence of optimal monetary targeting rules. In the case of local currency pricing, consumer heterogeneity leads an optimal monetary policy to generate currency misalignment and deviations from the law of one price. Theoretically, there are ranges of household heterogeneity in which monetary policy becomes ineffective, but this depends sensitively on the interaction of aggregate demand and relative price effects.

Uncertainties under monetary tightening and easing shocks and different market states

We examine the impact of monetary policy shocks on monetary policy and stock market uncertainties, testing for asymmetric responses to tightening/easing shocks, business cycle phases, and stock market volatility regimes. To identify monetary shocks, we use a theoretical vector autoregressive model of the US economy that accounts for the interconnectedness between monetary policy and the stock market, augmenting it to accommodate for unconventional monetary policy actions at the zero lower bound. Then, with local projections, we estimate the uncertainty responses of monetary policy and the stock market to such shocks. Our main findings suggest that monetary policy holds promising potential as an effective countercyclical tool to reduce uncertainties, through easing policies in recessions and tightening policies in expansions and/or tranquil stock market volatility regimes.

Monetary policy and bubbles in G7 economies using a panel VAR approach: Implications for sustainable development

We use the LPPLS Multi-Scale Confidence Indicator approach to detect both positive and negative bubbles in the short-, medium- and long-run for the stock markets of the G7 countries. We were able to detect major crashes and rallies in the seven stock markets over the monthly period of 1973:02 to 2020:09. We also observed similar timing of strong (positive and negative) LPPLS indicator values across the G7 countries, suggesting synchronized extreme movements in these stock markets. Given this, to obtain an overall picture of the G7, we used a panel VAR model to analyze the impact of monetary policy shocks on the six indicators of bubbles. We found that monetary policy not only impacts the bubble indicators but also responds to them, with the nature of the underlying responses contingent on whether bubbles are positive or negative in nature, as well as the time-scale we are analyzing. In light of these findings, our results have serious implications for monetary authorities of these advanced markets in terms of sustainable development, given the finance-growth nexus. But in general, we can conclude that central banks of the G7 can indeed “lean against the wind”, and they have also been doing so under both conventional and unconventional monetary policy periods.

Monetary Policy Shocks and Input–Output Characteristics of Production Networks

This paper revisits the production network’s role in transmitting monetary policy shocks. The study uses macroeconomic data for multiple OECD economies, for which it estimates the time-varying impulse response functions of GDP to monetary shocks. In contrast to recent macroeconomics papers focusing on upstreamness or downstreamness, the paper studies measures from the input–output literature, like average propagation length or fields of influence. When looking at the relationship between the production network measures and the impact of monetary policy shocks on GDP, measures like average propagation length or rows’ fields of influence, amplify the negative impact of the monetary policy shocks, while the forward linkage dampens them.

Analysis of Wamz’s Economic Growth and Monetary Policy Using the Markov Switching Approach

This study investigates the impact of monetary policy shocks in two regimes of the business cycles (contractionary and expansion regimes) in 4 countries in the West African monetary zone (WAMZ). It employs the Markov switching model, using quarterly data for the period 1980Q1 to 2020Q4. Our findings show that the countries have common business cycles. In addition, the study offered enough evidence that the significant effects of the monetary instruments are significantly more potent in contractionary than expansionary regimes. Furthermore, on the aggregate, the zone appears to have an average business cycle ranging from 9.8 to 32.3 quarters, varying from country to country and comparatively shorter than the industrial countries. Hence, the designing of policies by the monetary authorities in this region should be tailored to shorten the duration of the contractionary period and must be meticulously formulated to avert the negative consequences of strict contractionary policy and ditto to expansionary policy.

The Role of Property Prices in the Conduct of Monetary Policy: Evidence from Down Under

This paper examines link between property prices and monetary policy in New Zealand and Australia. Using an identified VAR model for open economies, we address two questions, i.e., whether a loose monetary policy cause house price appreciation, and whether central banks of the two countries conduct a policy of “leaning against the wind” by responding to house price shocks. Our findings suggest that, following an expansionary monetary policy shock, house prices inflations fall immediately. Yet, we find that the impact of monetary policy shocks on housing is small to modest in both countries. Furthermore, we find that the interest rate does not respond systematically to changes in house prices in New Zealand, whereas the Reserve Bank of Australia do respond systematically to fluctuations in housing price inflation.

THE IMPACT OF MONETARY POLICY SHOCKS IN INDONESIA

Monetary policy is an important policy of a country in maintaining balance in the economy. This study aims to test impact of monetary policy shocks in Indonesia against to economic variables. The data used in this study are the level of domestic prices (P), economic growth (EG), interest rates (IR), and the real exchange rate (R) with quarterly time periods in 2019-quarter 3 in 2021. This research used the Structural Vector model Autoregression (SVAR). The result shows that the contribution of monetary policy instruments varies considerably to economic variables such as economic growth, the level of domestic prices, and the real exchange rate. But, the biggest contribution of the BI rate is felt by the variable price (inflation).

The impact of monetary policy shocks on income inequality: a tale of two countries

The easing monetary policy after the global financial crisis triggered wide concerns on the responses of income inequality. In this paper, we investigate impact of monetary policy shocks on income inequality. We propose a general equilibrium model and show that monetary policies could affect income inequality by affecting the earnings of high-income households in financial markets and business operations. Using a TVP-FAVAR model, we find contradictory distributional effects of monetary policy shocks in China and the US. Specifically, expansionary monetary policy shocks persistently increase income inequality in China but decrease income inequality in the US. Moreover, the impacts are volatile in the short-term, but stabilise after 10 periods. The investigation on the responses of top 1% and bottom 50% income share confirms the finding of contradictory distributional effects of monetary policy shocks.

MONETARY POLICY SHOCK ON INFLATION, OUTPUT, AND EXCHANGE RATE

This study aims to estimate the impact of monetary policy shocks on inflation, output, and exchange rates during the inflation-targeting period. The data analyzed are quarterly data covering the period 2005Q3 - 2020Q1. The analysis tool used is the Vector Error Correction model with the cointegration relationships between variables. The results show that there are variations in the impact of the monetary policy shock on the response of the variables in the model. Monetary policy shocks can explain the forecast error variance of policy interest rates, inflation, exchange rates, and output, respectively, with the largest to the smallest contribution. The characteristics of shocks are unexpected and unpredictable, resulting in variability and volatility of the variable responses. Therefore, reducing the impact of the monetary policy shock can improve the effectiveness of the monetary policy. Improving the effectiveness of monetary policy can be done with the support of the central bank's credibility.

Impact of monetary policy transmission mechanism in West African countries

Abstract The study analyzed the impact of monetary policy shocks on economic growth in 12 countries of the Economic Community of West African States (ECOWAS), using quarterly data from 1980(1) to 2017(4). We employed a Panel Structural Vector Autoregressive (Panel SVAR) for the modeling of monetary policy transmission shock in the segregated sub-regions of WAMZ and WAEMU. The key results suggest that fluctuations of the monetary policy do not have significant effects on the economic growth but significantly impact the general price level. Moreover, the study finds that the exchange rate is persistently a vital mechanism that significantly influences the variables of the real economy. Our estimates further suggest that there is idiosyncratic evidence found in the results, which is the anomaly of the Price puzzle.

MONETARY POLICY AND INDUSTRIAL SECTOR PERFORMANCE IN NIGERIA: MEASURING THE EXTENDED IMPACT ON THE ECONOMY

The study empirically investigates the impact of monetary policy shocks on the performance of the industrial sector in Nigeria, and how this affect the general growth performance of the economy in the periods 1980-2018. Monetary policy variables used were money supply (M2t), monetary policy rate (Mprt), Treasury bill rate (Tbrt) and Credit to the private real sector (Credt). We also gauged the system with other control variables like gross fixed capital formation (gcft), inflation (????t) and exchange rate (exr). Utilizing Vector Autoregression (VAR) and Generalized Method of Moments (GMM), we found that any unanticipated shock on monetary policy rate and money supply growth will produce falling impact on industrial sector output that is consistent with no sign of convergence throughout the period. However, shocks to credit supply and treasury bill rate produces positive growth outliers at different magnitudes in the industrial sector. We also found statistically significant pass-through effect of monetary policy from the industrial sector to the general economy of at least 30 percent growth effect. A number of possible policy menu capable of deepening monetary policy-industrial performance nexus in Nigeria in years following the study have been prescribed in the studyincluding improved stock market development, bond market development and other credit channels that easily linked policy to the private sector for seamless policy transmission.

The real effects of capital requirements and monetary policy: Evidence from the United Kingdom

We examine how changes in capital requirements and monetary policy shocks affect corporate investment during a credit boom. Our empirical analysis uses data on SMEs in the UK between 1998 and 2006, a period when monetary policy and microprudential regulation were set by independent institutions. We find that an increase in bank-specific capital requirements led to a contraction in corporate debt and investment, but only for firms with short bank relationships. This suggests that relationships between firms and banks are crucial for the transmission of regulatory shocks. Long relationships also attenuate the impact of monetary policy shocks, but to a smaller degree than for capital requirement changes. We also find that the two policies do not dampen or amplify the effect of each other, but their effects vary with the size of banks’ capital buffers and the creditworthiness of firms.

Using LASSO-family models to estimate the impact of monetary policy on corporate investments

In this paper, I use LASSO-family models to select the relevant explanatory variables for the transmission of monetary policy shocks on investments and discuss the implications for the transmission mechanism of monetary policy. The results here point to the effect that Lasso techniques help select the relevant regressors. When the covariates are selected using this procedure, the impact of monetary policy shocks on corporate investments is about 20% lower than that for a baseline approach.

Monetary shock measurement and stock markets

AbstractThe narrative approach‐based measurement of monetary shocks suggests infrequent shocks are crucial for understanding the impact of monetary policy shocks on the economy. However, the narrative approach is dependent on costly data collection process, researcher judgment, and is prone to delays due to official document release. We present a stock market‐based regime switching unobserved components model to estimate the monetary shocks while preserving the key feature of infrequent shocks. Our estimated shocks are large and comparable to Romer and Romer (2004) shocks. The impulse responses to our estimated monetary policy shocks suggest that a 1% contractionary shock leads to 2% long‐term decline in industrial production with a peak effect of 3.5% decline and more than one percent long‐term decline in CPI.

Firms’ expectations and monetary policy shocks in the euro area

We investigate the impact of monetary policy shocks on firms’ selling price and production expectations utilizing a proxy structural vector autoregressive (SVAR) model for ten euro-area economies during the period from 1999:1 to 2018:6. To identify monetary policy shocks, we utilize instruments such as a narrative measure of monetary policy. Our estimated impulse responses indicate that firms initially revise their expectations in a manner consistent with imperfect information theoretical settings, e.g., increasing their production and selling price expectations after an unanticipated interest rate hike. Interestingly, we observe an overshooting pattern consistent with firms’ learning over time. Following the initial surprise that leads firms to raise their production and selling price expectations after an unanticipated interest rate hike, firms gradually come to expect contractionary monetary policy shocks to decrease economic activity, consistent with initially imperfectly informed firms revising their expectations in accordance with a learning process about the economy.