scholarly journals Are the Effects of Monetary Policy Shocks Big or Small?

2012 ◽  
Vol 4 (2) ◽  
pp. 1-32 ◽  
Author(s):  
Olivier Coibion
Keyword(s):  
Monetary Policy ◽  
Monetary Policy Shocks ◽  
Taylor Rules ◽  
The Real ◽  
Real Effects ◽  
Policy Shocks ◽  
Monetary Policy Shock ◽  
Historical Contribution

This paper studies the small estimated effects of monetary policy shocks from standard VARs versus the large effects from the Romer and Romer (2004) approach. The differences are driven by three factors: the different contractionary impetus, the period of reserves targeting, and lag length selection. Accounting for these factors, the real effects of policy shocks are consistent across approaches and most likely medium. Alternative monetary policy shock measures from estimated Taylor rules also yield medium-sized real effects and indicate that the historical contribution of monetary policy shocks to real fluctuations has been significant, particularly during the 1970s and early 1980s. (JEL E32, E43, E52)

SVAR (Mis)Identification and the Real Effects of Monetary Policy Shocks

2020 ◽  
Vol 12 (4) ◽  
pp. 1-32 ◽  
Author(s):  
Christian K. Wolf
Keyword(s):  
Monetary Policy ◽  
Empirical Literature ◽  
Monetary Policy Shocks ◽  
Taylor Rules ◽  
The Real ◽  
Real Effects ◽  
Policy Transmission ◽  
Policy Shocks ◽  
Jel C32 ◽  
Short Horizon

I argue that the seemingly disparate findings of the recent empirical literature on monetary policy transmission are all consistent with the same standard macro models. Weak sign restrictions, which suggest that contractionary monetary policy, if anything, boosts output, present as policy shocks what actually are expansionary demand and supply shocks. Classical zero restrictions are robust to such misidentification, but miss short-horizon effects. Two recent approaches—restrictions on Taylor rules and external instruments—instead work well. My findings suggest that empirical evidence is consistent with models in which the real effects of monetary policy are larger than commonly estimated. (JEL C32, E12, E32, E43, E52)

scholarly journals Spillovers of US Conventional and Unconventional Monetary Policies to Russian Financial Markets

2018 ◽  
Vol 10 (2) ◽  
pp. 14 ◽  
Author(s):  
Shigeki Ono
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Stock Prices ◽  
Monetary Policy Shocks ◽  
Federal Funds Rate ◽  
Monetary Policies ◽  
Endogenous Variables ◽  
Policy Shocks ◽  
Monetary Policy Shock

This paper investigates the spillovers of US conventional and unconventional monetary policies to Russian financial markets using VAR-X models. Impulse responses to an exogenous Federal Funds rate shock are assessed for all the endogenous variables. The empirical results show that both conventional and unconventional tightening monetary policy shocks decrease stock prices whereas an easing monetary policy shock does not increase stock prices. Moreover, the results suggest that an unconventional tightening monetary policy shock increases Russian interest rates and decreases oil prices, implying reduced liquidity in international financial markets.

TRANSMISSION OF MONETARY POLICY SHOCKS: DO INPUT–OUTPUT INTERACTIONS MATTER?

2019 ◽  
Vol 24 (8) ◽  
pp. 1881-1903
Author(s):  
Aarti Singh ◽  
Stefano Tornielli Di Crestvolant
Keyword(s):  
Monetary Policy ◽  
Spillover Effects ◽  
Intermediate Goods ◽  
Input Output ◽  
Monetary Policy Shocks ◽  
Vector Autoregressive ◽  
Policy Shocks ◽  
Monetary Policy Shock ◽  
New Evidence ◽  
Transmission Of Monetary Policy

We examine whether input–output interactions among industries impact the transmission of monetary policy shocks through the economy. Using vector autoregressive (VAR) methods we find evidence of heterogeneity in the output response to a monetary policy shock in both finished goods industries and intermediate goods industries. While output responses in finished goods industries can be related to heterogeneity in industry characteristics, this relationship is not so obvious for intermediate goods industries. For the intermediate goods industries in our sample, we find new evidence of demand-spillover effects that impact the transmission of monetary policy via input–output linkages.

scholarly journals Non-linearities, state-dependent prices and the transmission mechanism of monetary policy

2021 ◽  
Author(s):  
Guido Ascari ◽  
Timo Haber
Keyword(s):  
Monetary Policy ◽  
Price Level ◽  
Transmission Mechanism ◽  
Monetary Policy Shocks ◽  
Real Effects ◽  
State Dependent ◽  
Trend Inflation ◽  
Policy Shocks ◽  
Linear Effects ◽  
State Dependent Pricing

Abstract A sticky price theory of the transmission mechanism of monetary policy shocks based on state-dependent pricing yields two testable implications, that do not hold in time-dependent models. First, large monetary policy shocks should yield proportionally larger initial responses of the price level. Second, in a high trend inflation regime, the response of the price level to monetary policy shocks should be larger and real effects smaller. Our analysis provides evidence supporting these non-linear effects in the response of the price level in aggregate US data, indicating state-dependent pricing as an important feature of the transmission mechanism of monetary policy.

Central Bank Communications

2019 ◽  
pp. 262-286
Author(s):  
J. Scott Davis ◽  
Mark A. Wynne
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Open Market ◽  
Monetary Policy Shocks ◽  
Federal Open Market Committee ◽  
Quarter Century ◽  
The Past ◽  
Policy Shocks ◽  
Monetary Policy Shock ◽  
Daily Time

Over the past twenty-five years, central bank communications have undergone a major revolution. Central banks that previously shrouded themselves in mystery now embrace social media to get their message out to the widest audience. The volume of information about monetary policy that the Federal Open Market Committee (FOMC) now releases dwarfs what it was releasing a quarter century ago. This chapter focuses on just one channel of FOMC communications, the postmeeting statement. It documents how this has become more detailed over time. Then daily financial-market data are used to estimate a daily time series of US monetary policy shocks. These shocks on Fed statement release days have gotten larger as the statement has gotten longer and more detailed, and the chapter shows that the length and complexity of the statement have a direct effect on the size of the monetary policy shock following a Fed decision.

REAL EFFECTS OF MONETARY POLICY IN LARGE EMERGING ECONOMIES

2011 ◽  
Vol 16 (S2) ◽  
pp. 190-212 ◽  
Author(s):  
Sushanta K. Mallick ◽  
Ricardo M. Sousa
Keyword(s):  
Monetary Policy ◽  
Emerging Market ◽  
Monetary Policy Shocks ◽  
Equity Prices ◽  
Real Effects ◽  
Interest Rate Shocks ◽  
Policy Transmission ◽  
Policy Shocks ◽  
Negative Effect ◽  
Alternative Identification

This paper provides evidence on monetary policy transmission for five key emerging market economies: Brazil, Russia, India, China, and South Africa. Monetary policy (interest rate) shocks are identified using modern Bayesian methods along with the more recent sign restrictions approach. We find that contractionary monetary policy has a strong and negative effect on output. We also show that such contractionary monetary policy shocks do tend to stabilize inflation in these countries in the short term, while producing a strongly persistent negative effect on real equity prices. Overall, the impulse responses are robust to the alternative identification procedures.

scholarly journals The Effects of Monetary Policy on Stock Market Bubbles: Some Evidence

2015 ◽  
Vol 7 (1) ◽  
pp. 233-257 ◽  
Author(s):  
Jordi Galí ◽  
Luca Gambetti
Keyword(s):  
Monetary Policy ◽  
Stock Prices ◽  
Equity Premium ◽  
Monetary Policy Shocks ◽  
Conventional View ◽  
Varying Coefficients ◽  
Stock Market Bubbles ◽  
Policy Shocks ◽  
Monetary Policy Shock ◽  
Time Varying Coefficients

We estimate the response of stock prices to monetary policy shocks using a time-varying coefficients VAR. Our evidence points to protracted episodes in which stock prices end up increasing persistently in response to an exogenous tightening of monetary policy. That response is at odds with the “conventional” view on the effects of monetary policy on bubbles, as well as with the predictions of bubbleless models. We also argue that it is unlikely that such evidence can be accounted for by an endogenous response of the equity premium to the monetary policy shock. (JEL E43, E44, E52, G12, G14)

scholarly journals The Impact of Monetary Policy Shocks on Corporate Dynamic Investment Activity With Financial Heterogeneity

SAGE Open ◽  
2021 ◽  
Vol 11 (1) ◽  
pp. 215824402098868
Author(s):  
Mahbuba Aktar ◽  
Mohammad Zoynul Abedin ◽  
Anupam Das Gupta
Keyword(s):  
Monetary Policy ◽  
Investment Efficiency ◽  
Cash Holding ◽  
Monetary Policy Shocks ◽  
Investment Activity ◽  
Public Firms ◽  
Study Approach ◽  
Policy Shocks ◽  
Monetary Policy Shock ◽  
The Impact

This article assesses the differential reactions of firms’ investment to monetary policy shocks based on various financial heterogeneity measures, such as leverage and cash holdings. It applies U.S. public firms’ panel data from the sample period 1990Q1 to 2007Q4 and high-frequency event-study approach. Low-leverage and high cash holding firms react more to monetary policy shocks explaining the different investment activities. For the high-leverage and low cash holding firms, the two monetary policy shock variable interactions are statistically insignificant. However, they are statistically significant for the low-leverage and high cash holding firms. During a contractionary monetary policy period, higher cash holding firms improve investment efficiency. This article strengthens the literature of corporate investment behavior which can assist advance and optimize macrocontrol policies.

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