Meri Papavangjeli
Adam Geršl

financial conditions, monetary policy, credit gap stance, macro-financial vulnerabilities

E52, E51, E61, E63, E65

Papavangjeli M., Geršl A. (2024): " Monetary Policy, Macro-Financial Vulnerabilities, and Macroeconomic Outcomes " IES Working Papers 20/2024. IES FSV. Charles University.

Through a threshold Bayesian VAR model, the study analyses the non-linear transmission of monetary policy and financial conditions shocks to the real economy during 2000-2022, distinguishing between periods of varying financial fragility. The findings suggest that the credit-to-GDP gap could potentially function as an early warning indicator of financial vulnerabilities, with a positive gap possibly reflecting excessive risk-taking by financial institutions. Furthermore, the transmission of monetary policy is not symmetric over time; monetary policy tends to be less effective during periods of heightened vulnerabilities. At the same time, the economy’s response to financial condition shocks becomes increasingly asymmetric and state-dependent. Specifically, expansionary financial shocks tend to stimulate economic activity more strongly in low-vulnerability periods, while in high-vulnerability states they lead to weaker and less persistent macroeconomic effects.