Effects of the US monetary policy shocks during financial crises – a threshold vector autoregression approach

Renee Fry-McKibbin and Jasmine Zheng

Applied Economics, 2016, vol. 48, issue 59, 5802-5823

Abstract: This article analyzes the impact of monetary policy during periods of low and high financial stress in the US economy using a threshold vector autoregression model. There is evidence that expansionary monetary policy is effective during periods of high financial stress with larger responses having a higher proportionate effect on output. The existence of a cost channel effect during periods of high financial stress implies the existence of a short run output-inflation trade off during financial crises. Large expansionary monetary shocks also increase the likelihood of moving the economy out of a high financial stress regime.

Date: 2016
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Related works:
Working Paper: Effects of US monetary policy shocks during financial crises - A threshold vector autoregression approach (2016)
Working Paper: Effects of US Monetary Policy Shocks During Financial Crises - A Threshold Vector Autoregression Approach (2013)
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DOI: 10.1080/00036846.2016.1186792

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