scholarly journals Balance Sheet Channel of Monetary Policy: Evidence from Credit Spreads of Russian Firms

2021 ◽  
Vol 80 (4) ◽  
pp. 3-30
Author(s):  
Filipp Prokopev ◽  
Keyword(s):  
Monetary Policy ◽  
Balance Sheet ◽  
Credit Spreads ◽  
Monetary Shocks ◽  
Monetary Policy Shocks ◽  
Net Worth ◽  
External Finance ◽  
Balance Sheet Channel ◽  
Bond Issuers ◽  
Policy Shocks

In this paper, I analyse the relationship between the credit spreads of Russian bond issuers and monetary policy shocks. According to the theory of demand-side financial imperfections, in the presence of financial frictions, the higher the net worth of a firm, the lower its external finance premium. The theory of the balance sheet channel of monetary policy suggests that monetary shocks may affect the net worth of a firm through debt outflows. Together, these ideas predict that the external finance premium of more indebted companies is more sensitive to monetary policy shocks. However, my empirical findings from the credit spreads of Russian companies do not support this theory.

scholarly journals Monetary Policy, Real Activity, and Credit Spreads: Evidence from Bayesian Proxy SVARs

2019 ◽  
Vol 11 (1) ◽  
pp. 157-192 ◽  
Author(s):  
Dario Caldara ◽  
Edward Herbst
Keyword(s):  
Monetary Policy ◽  
Credit Spreads ◽  
Monetary Shocks ◽  
Structural Vector Autoregression ◽  
Monetary Policy Shocks ◽  
Real Activity ◽  
Financial Conditions ◽  
Corporate Credit ◽  
Policy Shocks ◽  
Jel C32

In this paper, we develop a Bayesian framework to estimate a proxy structural vector autoregression to identify monetary policy shocks. We find that during the Great Moderation period, monetary policy shocks induce a persistent decline in real activity and tightening in financial conditions. Central to this result is a systematic component of monetary policy characterized by a direct and economically significant reaction to changes in corporate credit spreads. The failure to account for this endogenous reaction induces an attenuation in the response of all variables to monetary shocks, a result that also applies to the narrative identification of Romer and Romer (2004). (JEL C32, E23, E32, E44, E52, E58)

scholarly journals Transmission of monetary policy shocks in small open emerging market economies

2021 ◽  
Vol 52 (4) ◽  
pp. 37-65
Author(s):  
M.Ye. Mamonov ◽  
◽  
A.A. Pestova ◽  
◽  
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Emerging Market ◽  
Emerging Market Economies ◽  
Monetary Shocks ◽  
Large Set ◽  
Monetary Policy Shocks ◽  
Market Economies ◽  
Policy Shocks ◽  
Transmission Of Monetary Policy

In this paper, we compare the transmission of monetary policy shocks using quarterly data for 13 emerging market economies (EMEs) with that in a benchmark advanced open economy, the United Kingdom, in the periods of inflation targeting (from 1990s onward). To estimate the transmission within a given country, we specify a monetary VAR-model and we extend it with a variable reflecting commodities terms of trade. We identify monetary policy shocks using a sign restriction scheme: a restrictive shock is determined as an unexpected rise of policy rate and reduction of inflation (CPI) and money demand (M2). We apply the Bayesian approach to estimating VARs to address the curse of dimensionality. Our results indicate that monetary policy in EMEs is not less efficient comparable to the U.K.: restrictive monetary shocks decrease inflation but also lead to a slowdown of GDP and stock market outflows. Overall, our findings add to the debate on the real effects of monetary policy surprises with a special attention to a large set of EMEs.

On the effects of monetary policy in Russia: The role of the space of spanned shocks and the policy regime shifts

2018 ◽  
pp. 33-55 ◽  
Author(s):  
A. A. Pestova
Keyword(s):  
Monetary Policy ◽  
Policy Instruments ◽  
Recursive Identification ◽  
Monetary Shocks ◽  
Monetary Policy Shocks ◽  
Vector Autoregressions ◽  
Policy Regime ◽  
Relative Contribution ◽  
Policy Shocks ◽  
Effect Of Monetary Policy

This paper investigates the influence of monetary policy shocks in Russia on the basic macroeconomic and financial indicators. To identify the shocks of monetary policy, the Bayesian approach to the estimation of vector autoregressions (VARs) is applied, followed by extraction of the unexplained dynamics of monetary policy instruments (shocks) using both recursive identification and sign restrictions approach. The estimates show that the monetary policy shocks, apparently, cannot be attributed to the key drivers of cyclical movements in Russia, as they explain only less than 10% of the output variation and from 5 to10% of the prices variation. When applying recursive identification, no restraining effect of monetary policy on prices is found. Respective impact on output is negative and statistically significant in all identification procedures employed; however, the relative contribution of monetary shocks to output is not large. In addition, no significant effect of monetary policy tightening on the stabilization of the ruble exchange rate was found.

scholarly journals Sectoral Effects of Monetary Policy: Evidence from Pakistan

2006 ◽  
Vol 45 (4II) ◽  
pp. 1103-1115 ◽  
Author(s):  
Tasneem Alam ◽  
Muhammad Waheed
Keyword(s):  
Monetary Policy ◽  
Transmission Mechanism ◽  
Monetary Shocks ◽  
Monetary Policy Shocks ◽  
Monetary Policies ◽  
Policy Makers ◽  
Regional Effects ◽  
Real Effects ◽  
Policy Shocks ◽  
Short Run

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)].

Α Model of Debt Deflation and the Phillips Curve: Implications for Business Cycles and the Balance Sheet Channel of Monetary Policy / Schulden-Deflation und die Phillips-Kurve: Implikationen für Konjunkturzyklen und den Bilanzkanal der Geldpolitik

2000 ◽  
Vol 220 (4) ◽  
Author(s):  
Lutz Arnold
Keyword(s):  
Monetary Policy ◽  
Business Cycles ◽  
Phillips Curve ◽  
Balance Sheet ◽  
New Keynesian ◽  
Inflation Expectations ◽  
Natural Rate ◽  
Net Worth ◽  
Balance Sheet Channel ◽  
Debt Deflation

SummaryNew Keynesian economics stresses the positive link between firms’ net worth, on the one hand, and the equilibrium level of credit granted and aggregate employment, on the other hand. The present paper argues that once money is introduced and adaptive inflation expectations are assumed, an accelerationist Phillips curve emerges: because of debt deflation, an increase in the rate of inflation reduces firms' real debt burden; because of the negative link between real debt and employment, unemployment falls. The natural rate of unemployment is the rate that occurs when inflation is constant. Frisch has proposed modeling business cycles by means of stochastic linear second-order difference equations which display damped oscillations in the absence of stochastic impulses. The New Keynesian model with adaptive expectations expounded here gives rise to business cycles in Frisch’s sense. This can be shown by applying Laidler’s result, derived in a different set-up, that the interaction between an accelerationist Phillips curve and the quantity theory of money yields Frisch-type cycles. Moreover, the model presented sheds some light on the working of the balance sheet channel of monetary policy.

Monetary Policy Shocks and Heterogeneous Finance Decisions: A Model of Hidden Effort Choice and Financial Intermediation

2003 ◽  
Vol 4 (3) ◽  
pp. 365-388
Author(s):  
Diemo Dietrich
Keyword(s):  
Monetary Policy ◽  
Liquidity Constraints ◽  
Bank Loans ◽  
Monetary Policy Shocks ◽  
External Finance ◽  
Monitoring Costs ◽  
Effort Choice ◽  
Policy Shocks ◽  
Internal Funds ◽  
Delegated Monitoring

Abstract The paper investigates how monetary policy shocks influence the composition of firms’ external finance given that firms are heterogeneous. Heterogeneity stems from differences in the availability of internal funds and in the monitoring costs associated with bank finance. These costs are determined by the intensity of the lending relationship. By using a delegated monitoring approach it is found that bank loans serve as a substitute for internal funds if the lending relationship is sufficiently close. Moreover, banks with strong credit ties to their customers are not only able to protect borrowers from liquidity constraints following a monetary tightening but are even able to extend their business lending.

scholarly journals Financial markets in CEE countries and their role in transmission of euro area monetary policy shocks

2015 ◽  
Vol 10 (2) ◽  
Author(s):  
Agata Wierzbowska
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Financial Markets ◽  
Simulation Analysis ◽  
Monetary Shocks ◽  
Financial Assets ◽  
Eastern European ◽  
Monetary Policy Shocks ◽  
Policy Shocks ◽  
Exchange Rate Markets

This paper uses the VAR methodology to analyse stock, bond, and exchange rate markets in six Central and Eastern European (CEE) countries. First, we study the influence of shocks occurring in each market on domestic economic conditions. Next, a counterfactual simulation analysis is carried out to discern the role of financial markets in the transmission of European Central Bank (ECB) monetary policy shocks into CEE economies. The results have implications for both present monetary policy-making and future euro adoptions, as well as for investors concerned with financial assets of CEE countries. While examining the estimated responses of domestic output and inflation to changes in stock, bond, and exchange rate prices, we draw conclusions on the relatively lower importance of the bond market and higher importance of stock and exchange rate markets in the economies. The study of transmission channels also points to stock markets as the main channel of transmission, especially in the case of transmission to the output. Transmission of monetary shocks to inflation takes place mainly through stock and exchange rate markets. There is also strong indication on considerable diversity across CEE countries taking place.

ESTIMATED THRESHOLDS IN THE RESPONSE OF OUTPUT TO MONETARY POLICY: ARE LARGE POLICY CHANGES LESS EFFECTIVE?

2013 ◽  
Vol 18 (1) ◽  
pp. 41-64 ◽  
Author(s):  
Luiggi Donayre
Keyword(s):  
Monetary Policy ◽  
Empirical Literature ◽  
Monetary Shocks ◽  
Cost Models ◽  
Monetary Policy Shocks ◽  
Policy Variable ◽  
Menu Cost ◽  
Policy Shocks ◽  
Unobserved Components Model ◽  
Effect Of Monetary Policy

This paper investigates the potential sources of the mixed evidence found in the empirical literature studying asymmetries in the response of output to monetary policy shocks of different magnitudes. Further, it argues that such mixed evidence is a consequence of the exogenous imposition of the threshold that classifies monetary shocks as small or large. To address this issue, I propose an unobserved-components model of output, augmented by a monetary policy variable, which allows the threshold to be endogenously estimated. The results show strong statistical evidence that the effect of monetary policy on output varies disproportionately with the size of the monetary shock once the threshold is estimated. Meanwhile, the estimates of the model are consistent with a key implication of menu-cost models: smaller monetary shocks trigger a larger response on output.

ECB Monetary Policy Actions and the Economic Conditions of a Non-Euro Member: The Case of Croatia

2017 ◽  
Vol 17 (2) ◽  
pp. 20170008
Author(s):  
Edmond Berisha
Keyword(s):  
Monetary Policy ◽  
Inflation Rate ◽  
Positive Impact ◽  
Monetary Shocks ◽  
Monetary Policy Shocks ◽  
Policy Changes ◽  
Economic Activities ◽  
Vector Autoregressive ◽  
Policy Shocks ◽  
The Interest Rate

This paper analyses the importance of ECB monetary policy shocks in the domestic activities of a non-EMU member, Croatia, with the main focus on the inflation rate. Using a Vector Autoregressive Model with an exogenous variable specification, it is found that the contraction of foreign monetary shocks have a significant positive impact on the local inflation rate and output. Interestingly, the interest rate gap exerts a statistically significant effect on the economic activities of Croatia, suggesting that targeting exchange rate stability does not eliminate the significance of ECB’s monetary policy changes.

scholarly journals A New Measure of Monetary Shocks: Derivation and Implications

2004 ◽  
Vol 94 (4) ◽  
pp. 1055-1084 ◽  
Author(s):  
Christina D Romer ◽  
David H Romer
Keyword(s):  
Monetary Policy ◽  
Monetary Shocks ◽  
Monetary Policy Shocks ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
Future Developments ◽  
Policy Shocks

This paper develops a measure of U.S. monetary policy shocks for the period 1969–1996 that is relatively free of endogenous and anticipatory movements. Quantitative and narrative records are used to infer the Federal Reserve's intentions for the federal funds rate around FOMC meetings. This series is regressed on the Federal Reserve's internal forecasts to derive a measure free of systematic responses to information about future developments. Estimates using the new measure indicate that policy has large, relatively rapid, and statistically significant effects on both output and inflation. The effects are substantially stronger and quicker than those obtained using conventional indicators.

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