FOEs and the transmission of US monetary policy shocks: Evidence from China

Time-varying effects of monetary policy shocks in five asian countries

Abstract We investigate whether the transmission of monetary shocks in Poland depends on the level of economic slack. To this end, we estimate smooth transition panel local projections using Poland’s regional data and analyze how monetary shocks affect unemployment and prices in regimes of high and low unemployment. Our key finding aligns with economic intuition: the response of unemployment to monetary policy shocks is stronger when economic slack is high, compared to when it is low. Conversely, the adjustment of prices to monetary innovations is more pronounced when idle resources in the economy are scarce, compared to when they are abundant. Our main conclusion is further supported by evidence showing that the difference in the strength of the employment response to monetary shocks, depending on the unemployment level, is more pronounced in sectors producing non-tradable goods than in those manufacturing tradable goods. Moreover, comparing our model with its linear counterpart confirms that monetary transmission in Poland indeed exhibits state-dependence, while the analysis of monetary shock distributions under low and high unemployment shows that our results are not driven by the presence of a regime-dependent pattern in monetary disturbances.

This study empirically analyzes the effects of macroprudential and monetary policies on key macroeconomic variables, as well as the interactions between the two policies. To this end, a Panel Vector Autoregression model with exogenous variables (PVARX) was employed using data from OECD countries and the Eurozone-19. The PVARX model includes the macroprudential policy index, industrial production index, consumer price index, producer price index, call rate, and household credit as endogenous variables, while the U.S. federal funds rate and the New York Stock Exchange volatility index (VIX) are treated as exogenous variables. For the Eurozone-19, since a common macroprudential policy index is not available, a new aggregate index was constructed by applying GDP-weighted averages of member countries’ macroprudential policy indices. The estimation results indicate that both contractionary macroprudential and monetary policy shocks exert negative effects on major macroeconomic variables such as output and household credit. Macroprudential policy tends to tighten in response to positive shocks to output and prices. This suggests that during economic expansions, when credit growth risks intensify, regulatory tools such as the countercyclical capital buffer (CCyB) are reinforced, and when inflation rises, liquidity-absorbing measures such as the reserve requirement (RR) are strengthened. Monetary policy responds to inflationary shocks by raising policy rates, implying that it has been primarily oriented toward price stability. Moreover, interest rates rise in response to macroprudential policy shocks, indicating that monetary policy generally acts in coordination with macroprudential policy among the countries analyzed.

The challenges in the Russian economy due to the labor market can have multidirectional effects on investment. A stimulus to investment might come from the adoption of labor-saving technologies and the resulting substitution of capital for labor. However, a constraint might be imposed by inability to hire labor to operate the newly acquired equipment. This paper presents a study of the impact of labor shortages on the investments made by enterprises in Russia as revealed in regular surveys of non-financial organizations conducted by the Central Bank of Russia. This analysis indicates that a diminishing labor supply is a factor that is increasing investment in the Russian economy. That this result is robust across different equations, evaluation methods, and initial datasets suggests that the investments are labor-saving in nature and supports the conclusion that capital is being substituted for labor. This effect is observed across all federal administrative districts and is most prevalent at industrial and trade enterprises, as well as at large and medium-sized businesses. The importance of labor shortages for investment in Russian businesses trended upward from 2019 to 2023. The need to compensate for lack of additional labor by increasing capital intensity in order to boost production volumes largely explains the low sensitivity of business investment to foreign exchange and monetary policy shocks and even to risk in general. The article’s findings suggest that inflationary pressure from the labor market will potentially subside in the medium and long term even as demographic trends continue to be negative.

Abstract We analyze transactional payment data to study consumption expenditure patterns in Switzerland. The high-frequency nature of the data enables credible identification of expenditure changes both across and within weeks, which is essential for business decisions and economic policy analysis. We construct a consumer spending index that is granular across regions and broad product categories, allowing for consistent analysis over multiple years. Using data starting in 2018, we demonstrate the index’s potential to (i) reveal expenditure patterns relevant for strategic decisions by businesses and consumers across weekdays and categories, and (ii) identify economically and statistically significant short-term effects of monetary policy shocks.

This study investigates structural changes in U.S. monetary policy effectiveness before and after the COVID-19 pandemic by analyzing the dynamic responses of key macroeconomic variables – personal consumption expenditures, industrial production, long-term interest rate, and the shadow short rate (SSR) – to monetary policy shocks using local projection methods, over the period from January 2016 to August 2025. This study reveals that in the pre-pandemic period, before March 2020, contractionary monetary policy shocks lead to conventional and statistically significant effects: declines in inflation rate and output growth, and temporary increases in long-term interest rates, reflecting effective monetary policy. In the post-pandemic period, after March 2020, responses are muted and largely statistically insignificant, indicating a weakened monetary policy effectiveness. Furthermore, counterfactual simulations that remove monetary policy shocks after March 2020 confirm that monetary policy continues to support real activity and financial conditions. Overall, the findings highlight structural changes in the U.S. monetary policy effectiveness under unpredictable economic circumstances.

Type of the article: Research ArticleAbstractExtensive research has been conducted on the global effects of the US unconventional monetary policy shock on capital flows in emerging markets. However, there is limited empirical evidence on the transmission channels of capital flows in emerging bond markets. This study examines it by analysing capital flows across 45 emerging bond markets from 2009 to 2023. Contemporaneous shock transmission is examined using the contemporaneous impact matrix, and dynamic shock transmission is assessed using the impulse response function of the structural vector autoregression (SVAR) model. All variables in this study are standardised to account for differences in scale within the model. The pairwise correlation coefficient matrix indicates that multicollinearity is not a concern for parameter estimates in this model. The ADF-Fisher Chi-square unit root test result reveals that all variables are stationary in this model. The contemporaneous coefficient matrix results indicate that changes in the US term spread serve as the contemporaneous transmission channel through which US Treasury bond purchase and US MBS purchase shocks positively affect capital flows in emerging bond markets. The impulse response function indicates that changes in the global financial cycle serve as a dynamic transmission channel through which US MBS purchase shocks affect capital flows in emerging bond markets. Moreover, changes in the US mortgage spread serve as the dynamic transmission channel through which US Treasury bond purchases and US MBS purchases affect capital flows in emerging bond markets.AcknowledgmentThe author expresses sincere gratitude to Assistant Professor Dr Nupur Moni Das, Faculty of Management Studies, Sri Sri University, India, for her careful proofreading of the manuscript and her valuable academic insights.

ABSTRACT This paper investigates the transmission of monetary policy within a two‐country New Keynesian model, accounting for both traditional cash and digital currencies, including a global stablecoin and a central bank digital currency, which are treated as imperfect substitutes. Our analysis reveals that if the global stablecoin assumes a significant role as a means of payment, the macroeconomic effects of a monetary policy shock may vary, potentially resulting in outcomes that can be either smaller or larger than those observed in an economy primarily reliant on cash. This result hinges on the response to the shock of the assets backing the supply of the stablecoin. The benchmark monetary transmission can be substantially restored if either the stablecoin is fully backed by cash or the central bank digital currency is a relevant means of payment.

ABSTRACT This paper investigates the shock‐dependent nature and evolution of the Phillips curve slope in the United States using a Bayesian structural vector autoregression model with sign restrictions on monthly data covering the period between 1960 and 2025. The slope is defined as the ratio of cumulative impulse responses of inflation to unemployment following identified demand, supply, and monetary policy shocks. Results indicate the slope is negative for demand and policy shocks but positive for supply shocks, generally steepening over the forecast horizon. A significant finding is the flattening of the policy‐shock‐dependent slope since 1990, suggesting a weaker inflation response to policy‐induced unemployment changes. Historical decompositions further illustrate the contribution of each shock to developments in inflation and unemployment. These findings highlight shock‐specific policy trade‐offs and increased challenges for monetary policy effectiveness due to the recent flattening.

ABSTRACT This study seeks to analyse monetary policy transmission (MPT) using a structural vector autoregression model (SVAR) in a transitional economy. First, a baseline recursive model based on the Cholesky decomposition was formulated to examine extensive time series, revealing abnormal reactions of prices and exchange rate (FX) to monetary policy (MP) shock. Second, we employed an alternative model to address anomalies, integrating both short- and long-run restrictions to refine the identification strategy. Both price and exchange rate puzzle were resolved with the alternative model and FX, consumer price index (CPI) had statistically significant reactions to the MP shock in the medium and long term. Third, it also indicated that the contractionary MP shock contributed to FX appreciation with a substantial magnitude while the FX shock produced a statistically significant CPI response, suggesting a strong FX pass-through. Robustness tests confirmed stability of the alternative model with different specifications. A clear communication strategy strengthens the credibility of the Central Bank of Uzbekistan (CBU) which reduces the strong FX pass-through and facilitates a smoother transition to the inflation targeting regime.

Monetary policy shocks and sectoral heterogeneity in clean energy markets.

This paper documents that households with higher marginal propensities to consume (MPCs) tend to consume goods with more flexible prices. Consequently, they face more cyclical and volatile inflation and experience higher inflation following an expansionary monetary policy shock. We embed this MPC-price stickiness relationship into a tractable multi-sector Two-Agent New Keynesian (TANK) model and analytically demonstrate that it dampens the effectiveness of monetary policy, reducing its efficacy by about 15% relative to a benchmark model with homogeneous consumption baskets. Introducing heterogeneous baskets also generates an inherently inefficient flexible-price equilibrium, which gives rise to a novel trade-off between stabilization and redistribution. The optimal monetary policy therefore differs qualitatively from the standard TANK policy prescription.

An empirical investigation of the effects of monetary policy shocks on the Italian economy

Global monetary policy shocks and the adaptation of supply chains

Previous research indicates that the stock market plays an important role in transmitting monetary policy shocks to the real economy. Building on this premise, this study explores the relationship between the nominal and real returns of the Iraq Stock Exchange (ISX) general index and monetary policy in Iraq by employing a specialised structural identification method – the sign-restriction approach. Monetary policy shocks are identified by imposing theoretically consistent sign restrictions on the impulse response functions. The analysis focuses on the effects of monetary policy shocks on nominal and real stock returns across three distinct monetary regimes: (i) the restrictive (contractionary) monetary policy periods (2004–2007 and 2011–2012), (ii) the accommodative (expansionary) monetary policy periods (2008–2010 and 2013–2016), and (iii) the output-targeting monetary policy period (2017–2024). Quantitatively, the study shows that during the restrictive monetary regime a contractionary policy shock causes a sizeable decline of about 0.43 percent in the nominal return of the ISX general index, while the response of the real return is almost nil and tends towards zero. This outcome is consistent with the iterative and empirical evidence in the literature. Surprisingly, the accommodative and output-targeting regimes generate a weak but noticeable positive response (0.04) in the nominal return and a negative response in the real return of the market index. The results suggest that the narrowness of the Iraqi stock market, its weak integration with the domestic economy, and the structural characteristics of the financial system all tend to dampen the transmission of monetary policy to stock returns.

We estimate a Bayesian three-dimensional dynamic factor model on the individual forecasts in the Survey of Professional Forecasters. The factors extract the most important dimensions along which disagreement comoves across variables. We interpret our results through a generic dispersed information model. The two most important factors in the data describe disagreement about aggregate supply and demand, respectively. Up until the Great Moderation, supply disagreement was dominant, while in recent decades and particularly during the Great Recession, demand disagreement was most important. By contrast, disagreement about monetary policy shocks seems to play a minor role in the data.

This study analysed monetary policy shocks, exchange rate devaluation and inflation volatility in West Africa Monetary Zones with the main objective of examining the impact of each of monetary policy shocks, exchange rate devaluation and inflation volatility has on one another in West Africa Monetary Zones. Four hypotheses were formulated to guide the study. Data were sourced from the Central Bank of Nigeria statistical bulletins and World Bank data base. The study used Generalized Autoregressive Conditional Heteroskedasticity (GARCH) to model inflation volatility before carrying out system Generalized Method of Moments (system-GMM), GARCH analysis and Monte Carlo Simulations. From the results, monetary policy shocks, exchange rate devaluation and inflation volatility in Nigeria persist throughout the study period. The results further revealed that the Nigerian economy is inherently unstable and was characterised by pronounced macroeconomic fluctuations, which was induced mainly by external factors such as oil price fluctuations and the naira exchange rate in the focused period. The results of the BEKK (Baba, Engle, Kraft, and Kroner) parameter estimates show significant evidence of shocks and volatility transmission as well as spill overs in the economy. Invariably, monetary policy shocks, exchange rate depreciation and inflation volatility combine to generate instabilities in the economy in dynamic feedback pattern. The study concluded that interest rate, inflation rate, exchange rate and trade openness exert influence on the economic growth of Nigeria. Amongst others, the study recommended that government should develop effective export promotion strategies in order to encourage domestic industries to improve on their productivity level for both domestic consumption and exportation.

Abstract This study investigates the industry effects of monetary policy in Korea by analyzing the role of sectoral heterogeneity regarding price stickiness and inter-industry relations. I extend a standard sticky-price Dynamic Stochastic General Equilibrium (DSGE) model into a model with heterogeneous production sectors, where each industry sector is allowed to have distinct price stickiness and inter-industry production linkages. Input–Output matrices are utilized to construct the inter-industry linkages, which reflect the use of final products from other sectors as material inputs or investment goods. Sectoral price stickiness and other model parameters are estimated using a Bayesian approach. From the estimated model, the asymmetric impact of monetary policy across sectors is investigated. Simulated impulse responses suggest that sectoral variables exhibit clear comovements in response to monetary policy shocks while the magnitudes of the responses differ considerably across sectors, which can be attributed to the differences in price rigidities and production linkages. Compared to the results from a standard single-sector model, the output response is more pronounced, while the inflation response diminishes. The results indicate that ignoring sectoral heterogeneities could bias estimates of monetary policy effects.

Abstract We contribute to the literature on business cycles by undertaking a comprehensive comparative assessment of the relative importance of supply, demand, and monetary policy shocks in driving macroeconomic fluctuations in the USA, Canada, Japan, the UK, and the euro area. Using structural Bayesian VAR models with sign, magnitude, and zero restrictions, we identify supply, demand, and monetary policy disturbances. We conduct both country-specific and cross-country comparisons, focusing on the post-1990s period when most countries adopted inflation targeting. We find that supply and demand shocks dominate monetary policy shocks in explaining output and inflation dynamics. While output fluctuations are primarily driven by either supply or demand shocks, depending on the country, inflation variation consistently stemmed from demand shocks, with monetary policy shocks typically contributing less than 10 per cent. The findings shed light on the recent drivers of output and inflation across major economies.