The Interplay Between Financial Conditions and Monetary Policy Shocks

Trevor Serrao, Luca Benzoni and Marco Bassetto
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Trevor Serrao: Federal Reserve Bank of Chicago

No 1124, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: We study the interplay between monetary policy and financial conditions shocks. Such shocks have a significant and similar impact on the real economy, though with different degrees of persistence. The systematic fed funds rate response to a financial shock contributes to bringing the economy back towards trend, but a zero lower bound on policy rates can prevent this from happening, with a significant cost in terms of output and investment. In a retrospective analysis of the U.S. economy over the past 20 years, we decompose the realization of economic variables into the contributions of financial, monetary policy, and other shocks.

Date: 2017
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mon
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Working Paper: The Interplay Between Financial Conditions and Monetary Policy Shocks (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:1124

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