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Monetary policy transmission in the United Kingdom: A high frequency identification approach

Ambrogio Cesa-Bianchi (), Gregory Thwaites and Alejandro Vicondoa ()

European Economic Review, 2020, vol. 123, issue C

Abstract: This paper investigates the impact of monetary policy shocks on macroeconomic and financial variables in the United Kingdom using a new series of high-frequency monetary policy surprises. Employing our surprises as an instrument in a monthly SVAR over the UK’s inflation-targeting period, we show that a monetary policy tightening induces a decline in economic activity and in CPI, an appreciation of the Pound, a reduction in bank credit, and a significant increase in mortgage and corporate bond spreads. UK monetary policy also affects foreign credit spreads, consistent with the extensive presence of large international players in the UK financial intermediation sector. We finally propose a novel test of overidentifying restrictions, which exploits the availability of the narrative series of monetary policy shocks constructed by Cloyne and Hurtgen (2016), and find that our high-frequency monetary policy surprises are not significantly affected by non-monetary news.

Keywords: Monetary policy transmission; External instrument; High-frequency identification; Structural VAR (search for similar items in EconPapers)
JEL-codes: E31 E32 E43 E44 E52 E58 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.euroecorev.2020.103375

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