EconPapers    
Economics at your fingertips  
 

Monetary Policy Surprises, Credit Costs and Economic Activity

Mark Gertler () and Peter Karadi ()

No 20224, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We provide evidence on the nature of the monetary transmission mechanism. To identify policy shocks in a setting with both economic and financial variables, we combine traditional monetary vector autoregression (VAR) analysis with high frequency identification (HFI) of monetary policy shocks. We first show that the shocks identified using HFI surprises as external instruments produce responses in output and inflation consistent with both textbook theory and conventional monetary VAR analysis. We also find, however, that monetary policy surprises typically produce "modest movements" in short rates that lead to "large" movements in credit costs and economic activity. The large movements in credit costs are mainly due to the reaction of both term premia and credit spreads that are typically absent from the standard model of monetary policy transmission. Finally, we show that forward guidance is important to the overall strength of the transmission mechanism.

JEL-codes: E3 E4 E5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
Date: 2014-06
Note: AP EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14) Track citations by RSS feed

Published as Monetary Policy Surprises, Credit Costs and Economic Activity , Mark Gertler, Peter Karadi. in Lessons from the Financial Crisis for Monetary Policy , Gertler. 2015
Published as Mark Gertler & Peter Karadi, 2015. "Monetary Policy Surprises, Credit Costs, and Economic Activity," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 44-76, January.

Downloads: (external link)
http://www.nber.org/papers/w20224.pdf (application/pdf)

Related works:
Journal Article: Monetary Policy Surprises, Credit Costs, and Economic Activity (2015) Downloads
Working Paper: Monetary Policy Surprises, Credit Costs, and Economic Activity (2015) Downloads
Working Paper: Monetary Policy Surprises, Credit Costs and Economic Activity (2014) Downloads
Chapter: Monetary Policy Surprises, Credit Costs and Economic Activity (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:nbr:nberwo:20224

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w20224

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-09-25
Handle: RePEc:nbr:nberwo:20224