American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Monetary Policy Surprises, Credit Costs, and Economic Activity
American Economic Journal: Macroeconomics
vol. 7,
no. 1, January 2015
(pp. 44–76)
(Complimentary)
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)Citation
Gertler, Mark, and Peter Karadi. 2015. "Monetary Policy Surprises, Credit Costs, and Economic Activity." American Economic Journal: Macroeconomics, 7 (1): 44–76. DOI: 10.1257/mac.20130329Additional Materials
JEL Classification
- E31 Price Level; Inflation; Deflation
- E32 Business Fluctuations; Cycles
- E43 Interest Rates: Determination, Term Structure, and Effects
- E44 Financial Markets and the Macroeconomy
- E52 Monetary Policy
- G01 Financial Crises
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