Monetary Policy, Real Activity, and Credit Spreads PDF Download

Author: Dario Caldara
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Author: Mark Gertler
Publisher:
ISBN:
Category : Credit
Languages : en
Pages : 47

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Book Description
We provide evidence on the nature of the monetary transmission mechanism. To identify policy shocks in a setting with both economic and financial variables, we combine traditional monetary vector autoregression (VAR) analysis with high frequency identification (HFI) of monetary policy shocks. We first show that the shocks identified using HFI surprises as external instruments produce responses in output and inflation consistent with both textbook theory and conventional monetary VAR analysis. We also find, however, that monetary policy surprises typically produce "modest movements" in short rates that lead to "large" movements in credit costs and economic activity. The large movements in credit costs are mainly due to the reaction of both term premia and credit spreads that are typically absent from the standard model of monetary policy transmission. Finally, we show that forward guidance is important to the overall strength of the transmission mechanism.

Author: Yu-Fan Huang
Publisher:
ISBN:
Category :
Languages : en
Pages : 28

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Book Description
This paper investigates how the term spread and the credit spread affect real output in the long-run. Predictive regression estimates imply that high term spreads signal long-lasting increases in output, while high credit spreads signal brief economic contraction. However, an impulse response analysis indicates that a positive shock in the credit spread leads to higher term spreads possibly due to monetary policy reactions. This interaction between term and credit spreads may lead to the inability of the credit spread to signal long-lasting changes in output. I thus specify a Vector Autoregression model and conduct a counterfactual analysis, which shuts down the interaction between spreads. The results using US data are summarized as follows: (i) a positive term spread shock, due to a TFP news shock, rises real output permanently; (ii) without the induced changes in the term spread, a positive credit spread shock causes the trend output to decline because of tight credit supply condition.

Author: Jeff Fuhrer
Publisher: MIT Press
ISBN: 026225820X
Category : Business & Economics
Languages : en
Pages : 517

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Book Description
Current perspectives on the Phillips curve, a core macroeconomic concept that treats the relationship between inflation and unemployment. In 1958, economist A. W. Phillips published an article describing what he observed to be the inverse relationship between inflation and unemployment; subsequently, the “Phillips curve” became a central concept in macroeconomic analysis and policymaking. But today's Phillips curve is not the same as the original one from fifty years ago; the economy, our understanding of price setting behavior, the determinants of inflation, and the role of monetary policy have evolved significantly since then. In this book, some of the top economists working today reexamine the theoretical and empirical validity of the Phillips curve in its more recent specifications. The contributors consider such questions as what economists have learned about price and wage setting and inflation expectations that would improve the way we use and formulate the Phillips curve, what the Phillips curve approach can teach us about inflation dynamics, and how these lessons can be applied to improving the conduct of monetary policy. Contributors Lawrence Ball, Ben Bernanke, Oliver Blanchard, V. V. Chari, William T. Dickens, Stanley Fischer, Jeff Fuhrer, Jordi Gali, Michael T. Kiley, Robert G. King, Donald L. Kohn, Yolanda K. Kodrzycki, Jane Sneddon Little, Bartisz Mackowiak, N. Gregory Mankiw, Virgiliu Midrigan, Giovanni P. Olivei, Athanasios Orphanides, Adrian R. Pagan, Christopher A. Pissarides, Lucrezia Reichlin, Paul A. Samuelson, Christopher A. Sims, Frank R. Smets, Robert M. Solow, Jürgen Stark, James H. Stock, Lars E. O. Svensson, John B. Taylor, Mark W. Watson

Author: Silvia Miranda-Agrippino
Publisher:
ISBN:
Category : Capital movements
Languages : en
Pages : 68

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We find that one global factor explains an important part of the variance of a large cross section of returns of risky assets around the world. Using a model with heterogeneous investors, we interpret the global factor as reflecting aggregate realised variance and the time-varying degree of market-wide risk aversion. A medium-scale Bayesian VAR allows us to analyse the workings of the "Global Financial Cycle", i.e. the interaction between US monetary policy, real activity and global financial variables such as credit spreads, cross-border credit flows, bank leverage and the global factor in asset prices. We find evidence of large monetary policy spillovers from the US to the rest of the world.

Author: Jose De Gregorio
Publisher:
ISBN:
Category : Economic development
Languages : en
Pages : 20

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Author: Frederic S. Mishkin
Publisher: MIT Press
ISBN: 0262134829
Category : Monetary policy
Languages : en
Pages : 561

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Book Description
This book by a leading authority on monetary policy offers a unique view of the subject from the perspectives of both scholar and practitioner. Frederic Mishkin is not only an academic expert in the field but also a high-level policymaker. He is especially well positioned to discuss the changes in the conduct of monetary policy in recent years, in particular the turn to inflation targeting. Monetary Policy Strategydescribes his work over the last ten years, offering published papers, new introductory material, and a summing up, "Everything You Wanted to Know about Monetary Policy Strategy, But Were Afraid to Ask," which reflects on what we have learned about monetary policy over the last thirty years. Mishkin blends theory, econometric evidence, and extensive case studies of monetary policy in advanced and emerging market and transition economies. Throughout, his focus is on these key areas: the importance of price stability and a nominal anch fiscal and financial preconditions for achieving price stability; central bank independence as an additional precondition; central bank accountability; the rationale for inflation targeting; the optimal inflation target; central bank transparency and communication; and the role of asset prices in monetary policy.

Author: Board of Governors of the Federal Reserve System
Publisher:
ISBN: 9780894991967
Category : Banks and Banking
Languages : en
Pages : 0

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Book Description
Provides an in-depth overview of the Federal Reserve System, including information about monetary policy and the economy, the Federal Reserve in the international sphere, supervision and regulation, consumer and community affairs and services offered by Reserve Banks. Contains several appendixes, including a brief explanation of Federal Reserve regulations, a glossary of terms, and a list of additional publications.

Author: Siem Jan Koopman
Publisher: Emerald Group Publishing
ISBN: 1785603523
Category : Business & Economics
Languages : en
Pages : 685

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Book Description
This volume explores dynamic factor model specification, asymptotic and finite-sample behavior of parameter estimators, identification, frequentist and Bayesian estimation of the corresponding state space models, and applications.

Author: Davide Debortoli
Publisher: International Monetary Fund
ISBN: 1484311752
Category : Business & Economics
Languages : en
Pages : 56

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Book Description
Yes, it makes a lot of sense. This paper studies how to design simple loss functions for central banks, as parsimonious approximations to social welfare. We show, both analytically and quantitatively, that simple loss functions should feature a high weight on measures of economic activity, sometimes even larger than the weight on inflation. Two main factors drive our result. First, stabilizing economic activity also stabilizes other welfare relevant variables. Second, the estimated model features mitigated inflation distortions due to a low elasticity of substitution between monopolistic goods and a low interest rate sensitivity of demand. The result holds up in the presence of measurement errors, with large shocks that generate a trade-off between stabilizing inflation and resource utilization, and also when ensuring a low probability of hitting the zero lower bound on interest rates.