Explaining the Strength and Efficiency of Monetary Policy Transmission: A Panel of Impulse Responses from a Time-Varying Parameter Model

Jakub Matějů

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: This paper analyzes both the cross-sectional and time variation in aggregate monetary policy transmission from nominal short-term interest rates to the price level. Using Bayesian TVP-VAR models where structural monetary policy shocks are identified by a mixture of short-term and sign restrictions, I show that monetary policy transmission has become stronger over the last few decades. This finding is robust across both developed and emerging economies. Monetary policy sacrifice ratios (the output costs of disinflation induced by monetary policy tightening) have decreased over the last four decades. Exploring the cross-country and time variation in monetary policy responses using panel regressions, I show that after a country adopted inflation targeting, monetary transmission became stronger and sacrifice ratios decreased. In periods of banking crises, the transmission from monetary policy interest rate shocks to prices is weaker and the related output costs are higher. Furthermore, countries with higher domestic private credit to GDP feature stronger transmission of interest rate shocks.

Keywords: Monetary policy transmission; sign-restrictions; TVP-VAR (search for similar items in EconPapers)
JEL-codes: C54 E52 (search for similar items in EconPapers)
Date: 2014-04
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:

Downloads: (external link)
https://www.cnb.cz/export/sites/cnb/en/economic-re ... wp/cnbwp_2014_04.pdf

Related works:
Working Paper: Explaining the Strength and the Efficiency of Monetary Policy Transmission: A Panel of Impulse Responses from a Time-Varying Parameter Model (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2014/04

Access Statistics for this paper

More papers in Working Papers from Czech National Bank, Research and Statistics Department Contact information at EDIRC.
Bibliographic data for series maintained by Tomas Karhanek ().