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On The Macroeconomic And Wealth Effects Of Unconventional Monetary Policy

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  • Jawadi, Fredj
  • Sousa, Ricardo M.
  • Traverso, Raffaella

Abstract

This paper focuses on the macroeconomic and wealth effects of unconventional monetary policy. To this end, we estimate a Bayesian structural vector autoregression (B-SVAR) using U.S. monthly data for the post-Lehman Brothers' collapse period. We show that a positive shock to the growth rate of central bank reserves does not have a substantial impact on industrial production or consumer prices. However, it also gives a strong boost to asset prices, which is larger in magnitude for stock prices than for housing prices. Thus, unconventional monetary policy typically operates via portfolio-rebalancing effects. A VAR counterfactual exercise confirms the role of the shocks to the growth rate of central bank reserves in explaining the dynamics of the variables included in the system, especially in the case of asset prices. Finally, additional empirical assessments uncover an important change in the conduct of monetary policy from “standard” to “exceptional” times and the suitability of our model to capture such a structural transformation.

Suggested Citation

  • Jawadi, Fredj & Sousa, Ricardo M. & Traverso, Raffaella, 2017. "On The Macroeconomic And Wealth Effects Of Unconventional Monetary Policy," Macroeconomic Dynamics, Cambridge University Press, vol. 21(5), pages 1189-1204, July.
    • Handle: RePEc:cup:macdyn:v:21:y:2017:i:05:p:1189-1204_00
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    Cited by:

    1. Francisco Serranito & Philipp RODERWEIS & Jamel Saadaoui, 2023. "Is Quantitative Easing Productive? The Role of Bank Lending in the Monetary Transmission Process," EconomiX Working Papers 2023-17, University of Paris Nanterre, EconomiX.
    2. Shahriyar Aliyev & Evžen Kočenda, 2023. "ECB monetary policy and commodity prices," Review of International Economics, Wiley Blackwell, vol. 31(1), pages 274-304, February.
    3. Karlyn Mitchell & Douglas K. Pearce, 2020. "How Did Unconventional Monetary Policy Affect Economic Forecasts?," Contemporary Economic Policy, Western Economic Association International, vol. 38(1), pages 206-220, January.
    4. Martínez-Cañete, Ana R. & Márquez-de-la-Cruz, Elena & Pérez-Soba, Inés, 2022. "Non-linear cointegration between oil and stock prices: The role of interest rates," Research in International Business and Finance, Elsevier, vol. 59(C).
    5. Yun Liu, 2022. "Housing and monetary policy: Fresh evidence from China," Financial Economics Letters, Anser Press, vol. 1(1), pages 1-12, December.
    6. Apergis, Nicholas & Chatziantoniou, Ioannis & Cooray, Arusha, 2020. "Monetary policy and commodity markets: Unconventional versus conventional impact and the role of economic uncertainty," International Review of Financial Analysis, Elsevier, vol. 71(C).
    7. Alexis Flageollet & Hamza Bahaji, 2016. "Monetary Policy and Risk-Based Asset Allocation," Open Economies Review, Springer, vol. 27(5), pages 851-870, November.
    8. Agnello Luca & Castro Vitor & Dufrénot Gilles & Jawadi Fredj & Sousa Ricardo M., 2020. "Unconventional monetary policy reaction functions: evidence from the US," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 24(4), pages 1-18, September.
    9. Elsayed, Ahmed H. & Sousa, Ricardo M., 2022. "International monetary policy and cryptocurrency markets: dynamic and spillover effects," LSE Research Online Documents on Economics 115305, London School of Economics and Political Science, LSE Library.
    10. Gokmenoglu, Korhan K. & Hadood, Abobaker Al.Al., 2020. "Impact of US unconventional monetary policy on dynamic stock-bond correlations: Portfolio rebalancing and signalling channel effects," Finance Research Letters, Elsevier, vol. 33(C).
    11. Delis, Manthos D. & Iosifidi, Maria & Mylonidis, Nikolaos, 2021. "Industry heterogeneity in the risk-taking channel," Economic Modelling, Elsevier, vol. 104(C).
    12. Faulwasser Timm & Gross Marco & Loungani Prakash & Semmler Willi, 2020. "Unconventional monetary policy in a nonlinear quadratic model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 24(5), pages 1-19, December.
    13. Yixiao Zhou & Rod Tyers & Damian Lenzo, 2022. "Debt, Inflation and the Shape of the Global Pandemic Recovery," Economics Discussion / Working Papers 22-03, The University of Western Australia, Department of Economics.
    14. Stephanos Papadamou & Vasilios Sogiakas, 2018. "The informational content of unconventional monetary policy on precious metal markets," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 37(1), pages 16-36, January.
    15. Cohen, Lior, 2023. "The effects of the BoJ's ETF purchases on equities and corporate investment," Economic Modelling, Elsevier, vol. 129(C).

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