How does transparency, a key feature of central bank design, affect monetary policy makers’ deliberations? Theory predicts a positive discipline effect and negative conformity effect. We empirically ...explore these effects using a natural experiment in the Federal Open Market Committee in 1993 and computational linguistics algorithms. We first find large changes in communication patterns after transparency. We then propose a difference-in-differences approach inspired by the career concerns literature, and find evidence for both effects. Finally, we construct an influence measure that suggests the discipline effect dominates.
This paper provides new evidence on the channels of monetary policy transmission combining 9 million observations on firm level investment and high-frequency identified monetary policy shocks. We ...show that the reaction of firms’ investment to a monetary policy shock is heterogeneous along dimensions that correspond to the two main channels of monetary policy transmission. First, we show that young firms are more sensitive to monetary policy shocks and that high leverage amplifies the effects, supporting the existence of a credit channel of monetary policy. Second, we document large cross-sectional heterogeneity related to the industry the firm operates in. We find that firms producing durable goods react more than others, which is consistent with traditional interest rate channel effects of monetary policy. Furthermore, this sectoral effect is longer lived. In line with the demand effects of the interest rate channel, we also provide evidence that sales growth of durables producing firms reacts stronger to a monetary policy shock.
We study how monetary policy in China influences banks’ shadow banking activities. We develop and estimate the endogenously switching monetary policy rule that is based on institutional facts and at ...the same time tractable in the spirit of Taylor (1993). This development, along with two newly constructed micro banking datasets, enables us to establish the following empirical evidence. Contractionary monetary policy during 2009–2015 caused shadow banking loans to rise rapidly, offsetting the expected decline of traditional bank loans and hampering the effectiveness of monetary policy on total bank credit. We advance a theoretical explanation of our empirical findings.
Through a survey of the literature on the economics of the coronavirus (COVID-19) pandemic, this study explores the effects of the pandemic and proposes potential policy directions to mitigate its ...effects. Our survey reveals that adverse economic effects have been observed due to the COVID-19 pandemic in addition to fatalities. Furthermore, the survey indicates the need for greater coordination at national and international levels. This study concludes by suggesting coordination among monetary, macroprudential, and fiscal policies (trio) to mitigate the adverse economic effects of COVID-19. Finally, this study explores potential directions for future research.
According to standard macroeconomic models, the zero lower bound greatly reduces the effectiveness of monetary policy and increases the efficacy of fiscal policy. However, private-sector decisions ...depend on the entire path of expected future short-term interest rates, not just the current short-term rate. Put differently, longer-term yields matter. We show how to measure the zero bound's effects on yields of any maturity. Indeed, 1- and 2-year Treasury yields were surprisingly unconstrained throughout 2008 to 2010, suggesting that monetary and fiscal policy were about as effective as usual during this period. Only beginning in late 2011 did these yields become more constrained.
Clearing Up the Fiscal Multiplier Morass Leeper, Eric M.; Traum, Nora; Walker, Todd B.
The American economic review,
08/2017, Letnik:
107, Številka:
8
Journal Article
Recenzirano
Odprti dostop
We quantify government spending multipliers in US data using Bayesian prior and posterior analysis of a monetary model with fiscal details and two distinct monetary-fiscal policy regimes. The ...combination of model specification, observable data, and relatively diffuse priors for some parameters lands posterior estimates in regions of the parameter space that yield fresh perspectives on the transmission mechanisms that underlie government spending multipliers. Short-run output multipliers are comparable across regimes—posterior means around 1.3 on impact—but much larger after 10 years under passive money/active fiscal than under active money/passive fiscal—90 percent credible sets of 1.5, 1.9 versus 0.1, 0.4 in present value, when estimated from 1955 to 2016.
•Study effects of US uncertainty shock on 15 emerging market economies (EMEs).•US uncertainty shock decreases EME asset prices and raises EME country spreads.•It decreases EME output and consumer ...prices while increasing net exports.•Negative effects on output and asset prices are weaker for Latin American EMEs.•Increase in net exports is stronger for Latin American EMEs.
Spillover effects of US uncertainty shocks are studied in a panel VAR of fifteen emerging market economies (EMEs). A US uncertainty shock negatively affects EME stock prices and exchange rates, raises EME country spreads, and decreases capital inflows into them. It decreases EME output and consumer prices while increasing net exports. Negative effects on output and asset prices are weaker, but effects on external balance stronger, for Latin American EMEs. We attribute such heterogeneity to differential EME monetary policy response to US uncertainty shocks. Analysis of central bank minutes shows Latin American EMEs pay less attention to smoothing capital flows.
We investigate 1-year interest rate swaps on USD, EUR, JPY and GBP between 2005 and 2020 utilising a quantile connectedness model. This approach allows for a nuanced investigation of connectedness ...and adds to understanding the monetary policy transmission mechanism within a highly integrated international financial system. Substantial interest rate changes (in either direction) matter for connectedness in financial markets. The results also indicate which currency drives developments depending on the direction of the change in interest rates. The full implementation and replication code — based on R, is available at: https://github.com/GabauerDavid/ConnectednessApproach.
•We study connectedness in IRS markets and include a magnitude dimension.•Large positive or negative interest rate changes increase connectedness.•Substantial variations are observed across major markets and over time.•The results have implications for the monetary transmission mechanism.
The Pre-FOMC Announcement Drift LUCCA, DAVID O.; MOENCH, EMANUEL
The Journal of finance (New York),
February 2015, Letnik:
70, Številka:
1
Journal Article
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We document large average excess returns on U.S. equities in anticipation of monetary policy decisions made at scheduled meetings of the Federal Open Market Committee (FOMC) in the past few decades. ...These pre-FOMC returns have increased over time and account for sizable fractions of total annual realized stock returns. While other major international equity indices experienced similar pre-FOMC returns, we find no such effect in U.S. Treasury securities and money market futures. Other major U.S. macroeconomic news announcements also do not give rise to preannouncement excess equity returns. We discuss challenges in explaining these returns with standard asset pricing theory.
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