The Changing Transmission Mechanism of U.S. Monetary Policy

Norhana Endut (), James Morley and Pao-Lin Tien
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Norhana Endut: Bank Negara Malaysia

No 2015-03, Discussion Papers from School of Economics, The University of New South Wales

Abstract: We examine the relative importance of the interest rate, exchange rate, and banklending channels for the transmission mechanism of monetary policy in the United States over the past 50 years. Our analysis is based on a structural vector autoregressive model that includes bank loans and uses sign restrictions to identify monetary policy shocks. Given these identified policy shocks, we quantify the relative importance of different transmission channels via counterfactual analysis. Our results suggest a nontrivial role for the bank-lending channel at the aggregate level, but its importance has been greatly diminished since the early 1980s. Despite the timing, we find no support for a link between this change in the transmission mechanism and the concurrent reduction in output volatility associated with the Great Moderation. There is, however, some evidence of a link to the reduction in inflation volatility occurring at the same time.

Keywords: Bank-Lending Channel; Sign Restrictions; Great Moderation (search for similar items in EconPapers)
JEL-codes: C32 E52 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015-01
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-sea
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Citations: View citations in EconPapers (6)

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Journal Article: The changing transmission mechanism of US monetary policy (2018)
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