Monetary tightening, inflation drivers and financial stress
Frederic Boissay,
Fabrice Collard,
Cristina Manea and
Adam Shapiro
No 1155, BIS Working Papers from Bank for International Settlements
Abstract:
TThe paper explores the state–dependent effects of a monetary policy tightening on financial stress, focusing on a novel dimension: whether inflation is driven by supply factors versus demand factors at the time of the policy intervention. We use local projections to estimate the effect of high frequency identified monetary policy surprises on a variety of financial stress measures, differentiating the effects based on whether inflation is supply–driven or demand–driven. We find that financial stress flares up after a monetary tightening when inflation is supply–driven whereas it remains roughly unchanged or even declines when inflation is demand–driven. Our findings point to a potential trade–off between price and financial stability when inflation is high and driven by supply factors.
Keywords: supply– versus demand–driven inflation; monetary tightening; financial stress (search for similar items in EconPapers)
JEL-codes: E1 E3 E6 G01 (search for similar items in EconPapers)
Date: 2023-12
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
https://www.bis.org/publ/work1155.pdf Full PDF document (application/pdf)
https://www.bis.org/publ/work1155.htm (text/html)
Related works:
Working Paper: Monetary Tightening, Inflation Drivers and Financial Stress (2023) 
Working Paper: Monetary Tightening, Inflation Drivers and Financial Stress (2023) 
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:bis:biswps:1155
Access Statistics for this paper
More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().