Explaining the Strength and the Efficiency of Monetary Policy Transmission: A Panel of Impulse Responses from a Time-Varying Parameter Model

Jakub Matějů

No 2013/18, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: This paper analyzes both the cross-sectional and time variation in aggregate monetary policy transmission from nominal short term interest rates to price level. Using Bayesian TVP-VARs where the structural interest rate shocks are identi_ed by sign restrictions, we show that monetary policy transmission became stronger over the last decades. This applies both to developed and emerging economies. Monetary policy sacrifice ratios (the output costs of disination induced by monetary policy tightening) gradually decreased from their peak in the 1980's. Exploring the cross-country and time variation in panel regressions, we show that when a country adopted ination targeting regime, monetary transmission became stronger (by about 0.8 p.p. of price level response to 1 p.p. shock to the policy rate) and sacrifice ratios decreased. In periods of banking crises, the transmission from monetary policy interest rate shocks to prices is weaker (by about 1 p.p. of price level response to a 1 p.p. shock to the policy rate) and the related costs in output are higher. Further, countries with higher domestic credit to GDP have stronger transmission while countries with higher foreign debt seem to be less inuenced by domestic monetary policy.

Keywords: monetary policy transmission; TVP-VAR; sign-restrictions (search for similar items in EconPapers)
JEL-codes: C54 E52 (search for similar items in EconPapers)
Pages: 26pages
Date: 2013-11, Revised 2013-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://ies.fsv.cuni.cz/sci/publication/show/id/4952/lang/cs (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://ies.fsv.cuni.cz/sci/publication/show/id/4952/lang/cs [301 Moved Permanently]--> https://ies.fsv.cuni.cz/sci/publication/show/id/4952/lang/cs)

Related works:
Working Paper: Explaining the Strength and Efficiency of Monetary Policy Transmission: A Panel of Impulse Responses from a Time-Varying Parameter Model (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fau:wpaper:wp2013_18

Access Statistics for this paper

More papers in Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().