Monetary Policy Transmission during Financial Crises: An Empirical Analysis

Tatjana Dahlhaus

Staff Working Papers from Bank of Canada

Abstract: This paper studies the effects of a monetary policy expansion in the United States during times of high financial stress. The analysis is carried out by introducing a smooth transition factor model where the transition between states (“normal” and high financial stress) depends on a financial conditions index. Employing a quarterly data set over the period 1970Q1 to 2009Q2 containing 108 U.S. macroeconomic and financial time series, I find that a monetary policy shock during periods of high financial stress has stronger and more persistent effects on macroeconomic variables such as output, consumption, and investment than it has during “normal” times. Differences in effects among the regimes seem to originate from non-linearities in the credit channel.

Keywords: Econometric and statistical methods; Financial markets; Transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: C11 C32 E32 E44 G01 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2014
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:14-21

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