Does monetary policy have economically significant effects on
the real output? Historically, economists have tended to hold markedly
different views with regard to this question. In recent times, however,
there seems to be increasing consensus among monetary economists and
policy-makers that monetary policy does have real effects, at least in
the short run.1 Consequently, focus of monetary policy analysis has
recently shifted from the big question of whether money matters, to
emphasising other aspects of monetary policy and its relations to real
economic activity. One aspect that has received considerable attention
of late is the sectoral or regional effects of monetary policy shocks.
Recent studies on the subject make it quite clear that different sectors
or regions of the economy respond differently to monetary shocks. This
observation has profound implications for the macroeconomic management
as the central bank will have to weigh the varying consequences of its
actions on different sectors or regions of the economy. For instance,
the tightening of monetary policy might be considered mild from the
aggregate perspective, yet it can be viewed as excessive for certain
sectors. If this is true then monetary policy should have strong
distributional effects within the economy. Accordingly, information on
which sectors react first and are more adversely affected by monetary
tightening provides valuable information to monetary authorities in
designing appropriate monetary policies. Additionally, the results can
contribute to our understanding of the underlying nature of transmission
mechanism. And for that reason, many economists have called for a
disaggregated analysis of monetary transmission mechanism [e.g., Domac
(1999), Dedola and Lippi (2005), Ganley and Salmon (1997), Carlino and
DeFina (1998)].
Monetary Policy, Real Activity, and Credit Spreads: Evidence from Bayesian Proxy SVARs
