US monetary policy is more powerful in low economic growth regimes

Roberto A. De Santis and Tommaso Tornese

No 2919, Working Paper Series from European Central Bank

Abstract: We use nonlinear empirical methods to uncover non-linearities in the propagation of monetary policy shocks. We find that the transmission on output, goods prices and asset prices is stronger in a low growth regime, contrary to the findings of Tenreyro and Thwaites (2016). The impact is stronger on private investment and durables and milder on the consumption of nondurable goods and services. In periods of low growth, a contractionary monetary policy implies lower expected Treasury rates and higher premia along the entire Treasury yield curve. Similarly, the corporate excess bond premium rises and the stock market drops substantially during recessions. We use the monetary policy surprises and their predictors provided by Bauer and Swanson (2023a), and identify an additional predictor, the National Financial Condition Index (NFCI), which is relevant in the nonlinear setting. A Threshold VAR, a Smooth-Transition VAR and nonlinear local projection methods all corroborate the findings. JEL Classification: C32, E32

Keywords: asset prices; business cycles; local projections; monetary policy; non-linearities; STVAR; TVAR (search for similar items in EconPapers)
Date: 2024-03
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-mon
Note: 185689
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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