Publication detail

Explaining the Strength and the Efficiency of Monetary Policy Transmission: A Panel of Impulse Responses from a Time-Varying Parameter Model

Author(s): Jakub Matějů ,
Type: IES Working Papers
Year: 2013
Number: 18
ISSN / ISBN:
Published in: IES Working Papers 18/2013
Publishing place: Prague
Keywords: monetary policy transmission, TVP-VAR, sign-restrictions
JEL codes: E52, C54
Suggested Citation: Matějů, J. (2013). “ Explaining the Strength and the Efficiency of Monetary Policy Transmission: A Panel of Impulse Responses from a Time-Varying Parameter Model” IES Working Paper 18/2013. IES FSV. Charles University.
Abstract: This paper analyzes both the cross-sectional and time variation in aggregate monetary policy transmission from nominal short term interest rates to price level. Using Bayesian TVP-VARs where the structural interest rate shocks are identi_ed by sign restrictions, we show that monetary policy transmission became stronger over the last decades. This applies both to developed and emerging economies. Monetary policy sacrifice ratios (the output costs of disination induced by monetary policy tightening) gradually decreased from their peak in the 1980's. Exploring the cross-country and time variation in panel regressions, we show that when a country adopted ination targeting regime, monetary transmission became stronger (by about 0.8 p.p. of price level response to 1 p.p. shock to the policy rate) and sacrifice ratios decreased. In periods of banking crises, the transmission from monetary
policy interest rate shocks to prices is weaker (by about 1 p.p. of price level response to a 1 p.p. shock to the policy rate) and the related costs in output are higher. Further, countries with higher domestic credit to GDP have stronger transmission while countries with higher foreign debt seem to be less inuenced by domestic monetary policy.
Downloadable: WP_2013_18_Mateju

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