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State-dependent monetary policy transmission and financial market tensions

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  • Rüth, Sebastian K.

Abstract

Is monetary policy more powerful when strains in the financial system are high? Applying local projections to US time series, I approach this question by allowing monetary policy shocks and its propagation to the broader economy to smoothly vary according to a measure of financial market tensions—the so-called excess bond premium (EBP). I find that monetary policy impacts macroeconomic, housing, and financial variables stronger and more persistently when financial frictions are high.

Suggested Citation

  • Rüth, Sebastian K., 2017. "State-dependent monetary policy transmission and financial market tensions," Economics Letters, Elsevier, vol. 157(C), pages 56-61.
    • Handle: RePEc:eee:ecolet:v:157:y:2017:i:c:p:56-61
    DOI: 10.1016/j.econlet.2017.05.008
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    References listed on IDEAS

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    Cited by:

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    2. Rohit, Abhishek & Dash, Pradyumna & Rao, D. Tripati, 2020. "A comparative assessment of the spillovers of US monetary policy shocks and its mitigation," Economics Letters, Elsevier, vol. 197(C).
    3. Colombo, Valentina & Paccagnini, Alessia, 2020. "Does the credit supply shock have asymmetric effects on macroeconomic variables?," Economics Letters, Elsevier, vol. 188(C).

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    More about this item

    Keywords

    Excess bond premium; Monetary policy; Local projections;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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