Industry Impacts of Unconventional Monetary Policy

While conventional monetary policy has been shown to create differential impacts on industry output, how unconventional monetary policy affects industries is not yet known. Conducting an industry level analysis provides insights of the relative response of industries, monetary transmission mechanisms, and the role of industry composition on the aggregate impact. This paper studies the effects of unconventional monetary policy on industry output in the United States, the United Kingdom, and Japan, three countries that have recently implemented unconventional monetary policy. I use a structural Bayesian vector autoregressive model with zero and sign restrictions to identify an unconventional monetary policy shock. The effects on output across industries within a country have substantial heterogeneity. For example, industry peak output responses in the United States vary from -0.01% to +0.35% in response to a one standard deviation shock to the central bank total asset. Industries across the three countries have some variation in output response to unconventional monetary policy, however, on average the effects are similar to conventional monetary policy. Furthermore, regression analysis shows that lower working capital is associated with a larger industry output response to unconventional monetary policy. The finding indicates the relevance of the interest rate channel to unconventional monetary policy while the policy rates adhere to the zero lower bound.