Has the Transmission of US Monetary Policy Changed Since 2022?

Philip Barrett and Josef Platzer

No 2024/129, IMF Working Papers from International Monetary Fund

Abstract: Activity and inflation responded slowly to the Federal Reserve’s rate hikes in 2022. Was this because the transmission of monetary policy had changed? Or did other shocks offset tighter policy? We use pre-pandemic data to estimate a VAR with monetary policy shocks identified from high-frequency data, and use it as a filter to back out the sequence of monetary policy shocks consistent with data since 2022. We compare these implied shocks to the actual shocks and find the difference statistically significant during February-July 2022. These differences imply that monetary transmission was around 25 percent weaker than normal. Our method accounts for other shocks; allowing them to change to match the post-COVID covariance of the data produces similar results but in a shorter period. We decompose changes in the uncertainty of our estimate and find that colinearity of shocks is generally more important than uncertainty over model parameters. We extend our analysis to central bank information shocks and find Federal Reserve communication was less powerful than usual during 2021.

Keywords: Monetary Policy; Semi-structural Identification; VAR; Filtering; rate hike; monetary policy shock; transmission of monetary policy; pandemic data; Federal Reserve communication; Vector autoregression; Data processing; Inflation; COVID-19; Labor markets; Global (search for similar items in EconPapers)
Pages: 33
Date: 2024-06-21
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=550898 (application/pdf)

Related works:
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:imf:imfwpa:2024/129

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().