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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.

New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mon
Date: 2017
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Working Paper: The Interplay Between Financial Conditions and Monetary Policy Shocks (2016) Downloads
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