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Monetary Policy Surprises, Credit Costs, and Economic Activity

Peter Karadi and Mark Gertler ()
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Peter Karadi: European Central Bank

No 447, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We provide evidence on the transmission of monetary policy shocks in a setting with both economic and financial variables. We first show that shocks identified using high frequency surprises around policy announcements as external instruments produce responses in output and in inflation that are typical in monetary VAR analysis. We also find, however, that the resulting "modest" movements in short rates lead to "large" movements in credit costs, which are due mainly to the reaction of both term premia and credit spreads. Finally, we show that forward guidance is important to the overall strength of policy transmission.

New Economics Papers: this item is included in nep-cba and nep-mon
Date: 2015
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Related works:
Journal Article: Monetary Policy Surprises, Credit Costs, and Economic Activity (2015) Downloads
Working Paper: Monetary Policy Surprises, Credit Costs and Economic Activity (2014) Downloads
Working Paper: Monetary Policy Surprises, Credit Costs and Economic Activity (2014) Downloads
Chapter: Monetary Policy Surprises, Credit Costs and Economic Activity (2013)
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