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The changing transmission mechanism of US monetary policy

Author

Listed:
  • Norhana Endut

    (Bank Negara Malaysia)

  • James Morley

    (University of New South Wales)

  • Pao-Lin Tien

    () (Bureau of Economic Analysis)

Abstract

Abstract We examine the relative importance of the interest rate, exchange rate, and bank-lending channels for the transmission mechanism of monetary policy in the United States over the past fifty years. Our analysis is based on a structural vector autoregressive model that includes bank loans and uses sign restrictions to identify monetary policy shocks. Given these identified policy shocks, we quantify the relative importance of different transmission channels via counterfactual analysis. Our results suggest a nontrivial role for the bank-lending channel at the aggregate level, but its importance has been greatly diminished since the early 1980s. Despite the timing, we find no support for a link between this change in the transmission mechanism and the concurrent reduction in output volatility associated with the Great Moderation. There is, however, some evidence of a link to the reduction in inflation volatility occurring at the same time.

Suggested Citation

  • Norhana Endut & James Morley & Pao-Lin Tien, 2018. "The changing transmission mechanism of US monetary policy," Empirical Economics, Springer, vol. 54(3), pages 959-987, May.
  • Handle: RePEc:spr:empeco:v:54:y:2018:i:3:d:10.1007_s00181-017-1240-7
    DOI: 10.1007/s00181-017-1240-7
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    Cited by:

    1. Jorge David Quintero Otero, 2015. "Impactos de la política monetaria y canales de transmisión en países de América Latina con esquema de inflación objetivo," Revista ESPE - ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 33(76), pages 61-75, April.
    2. Nicolas Moumni & Benaissa Nahhal, 2014. "Impact of Liquidity Level on the Monetary Policy Transmission Effectiveness of the Moroccan Central Bank (Bank Al Maghrib)," International Journal of Economics and Financial Issues, Econjournals, vol. 4(4), pages 801-818.

    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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