American Economic Journal Macroeconomics· 2015Q1
Monetary Policy Surprises, Credit Costs, and Economic Activity
- 1,455citations
- Q1SCImago
- 2015year
Short summary
Monetary policy shocks, identified via high-frequency announcement surprises, lead to modest short-rate changes but large shifts in credit costs, primarily driven by term premia and credit spreads.
AI-generated from the title and abstract; the full text is not read.
Key points
- Monetary policy shocks identified by high-frequency surprises yield standard VAR responses in output and inflation.
- These shocks cause modest short-rate movements but large shifts in credit costs.
- Credit cost movements are primarily driven by reactions in term premia and credit spreads.
- Forward guidance plays a crucial role in the overall strength of monetary policy transmission.
AI-generated from the title and abstract; the full text is not read.
Abstract
We provide evidence on the transmission of monetary policy shocks in a setting with both economic and financial variables. We first show that shocks identified using high frequency surprises around policy announcements as external instruments produce responses in output and inflation that are typical in monetary VAR analysis. We also find, however, that the resulting “modest” movements in short rates lead to “large” movements in credit costs, which are due mainly to the reaction of both term premia and credit spreads. Finally, we show that forward guidance is important to the overall strength of policy transmission. (JEL E31, E32, E43, E44, E52, G01)
The authors' abstract, as published at the source. American Economic Journal Macroeconomics, 2015 · DOI ↗
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Field: General Economics, Econometrics and Finance
General Economics, Econometrics and FinanceEconomics, Econometrics and Finance