The financial stability dark side of monetary policy
Antonio Conti () and
Fabrizio Venditti ()
No 1121, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area
Since monetary policy affects risk premiums, and these appear to have a stronger influence on economic activity when they rise than when they fall, temporary monetary expansions may both stimulate the economy and sow the seeds of damaging financial market corrections in the future. We investigate this possibility by using local projection methods to examine the propagation of monetary shocks through US corporate bond markets. We find that, while the transmission of monetary shocks is symmetric, the impact of macroeconomic data releases is asymmetric: spreads are more responsive to bad news. Crucially, these responses precede economic slowdowns rather than directly cause them.
Keywords: monetary policy; financial stability; risk premia; macro news; local projections (search for similar items in EconPapers)
JEL-codes: C32 E32 F34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
http://www.bancaditalia.it/pubblicazioni/temi-disc ... 121/en_tema_1121.pdf (application/pdf)
Working Paper: The Financial Stability Dark Side of Monetary Policy (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1121_17
Access Statistics for this paper
More papers in Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by ().