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Deposit rate ceilings and monetary transmission in the US

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  • Mertens, Karel

Abstract

Establishing the existence and nature of changes in the conduct and transmission of monetary policy is key in understanding the remarkable macroeconomic performance of the US since the mid-1980s. This paper presents evidence on a phenomenon of disintermediation occurring during the major recessions in the 1960s and 1970s, but absent ever since, and shows that disintermediation is closely linked to the existence of deposit rate ceilings under regulation Q. In a monetary DSGE model that incorporates deposit rate ceilings as occasionally binding constraints, the regulation alters the behavior of money aggregates and exacerbates the drop in economic activity following a monetary tightening. The results of a threshold VAR lend support to the main theoretical predictions of the model.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 55 (2008)
Issue (Month): 7 (October)
Pages: 1290-1302

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Handle: RePEc:eee:moneco:v:55:y:2008:i:7:p:1290-1302

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Web page: http://www.elsevier.com/locate/inca/505566

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Keywords: Monetary policy Monetary transmission Banking Financial regulation;

References

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Citations

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Cited by:
  1. Eickmeier, Sandra & Hofmann, Boris, 2010. "Monetary policy, housing booms and financial (im)balances," Discussion Paper Series 1: Economic Studies 2010,07, Deutsche Bundesbank, Research Centre.
  2. Lenno Uusküla, 2008. "Limited participation or sticky prices? New evidence from firm entry and failures," Bank of Estonia Working Papers 2008-07, Bank of Estonia, revised 02 Dec 2008.
  3. Tomas Havranek & Marek Rusnak, 2012. "Transmission Lags of Monetary Policy: A Meta-Analysis," William Davidson Institute Working Papers Series wp1038, William Davidson Institute at the University of Michigan.
  4. Meeks, Roland, 2012. "Do credit market shocks drive output fluctuations? Evidence from corporate spreads and defaults," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 568-584.
  5. Roland Meeks, 2009. "Credit market shocks: evidence from corporate spreads and defaults," Working Papers 0906, Federal Reserve Bank of Dallas.
  6. Robert L. Hetzel, 2009. "Should increased regulation of bank risk-taking come from regulators or from the market?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 161-200.

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