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Unconventional Monetary Policy Shocks in OECD Countries: How Important is the Extent of Policy Uncertainty?

Author

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  • Rangan Gupta

    () (Department of Economics, University of Pretoria)

  • Charl Jooste

    () (Department of Economics, University of Pretoria)

Abstract

We study the effects of unconventional monetary policy shocks on output, inflation and uncertainty using a sign restricted panel VAR over the monthly period of 2008:1-2015:1. Our sample includes primarily OECD countries (Canada, Germany, France, Italy, Japan, Spain, UK and US) that reached the interest rate zero lower bound in response to the recent financial crisis. Central bank balance sheets are used to gauge the size of unconventional monetary policy reactions to the crisis. We control for the degree of uncertainty by estimating the economic response to balance sheet shocks in two economic states: high versus low uncertainty. We use sign restrictions to identify our shocks, but remain agnostic regarding price and output responses to balance sheet shocks. We show that the mean group response of prices and output increases in response to monetary policy. The results, however, vary by country and are sensitive to the degree of uncertainty. Prices and output do not necessarily increase uniformly across countries.

Suggested Citation

  • Rangan Gupta & Charl Jooste, 2015. "Unconventional Monetary Policy Shocks in OECD Countries: How Important is the Extent of Policy Uncertainty?," Working Papers 201587, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201587
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    References listed on IDEAS

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    Cited by:

    1. Balcilar, Mehmet & Demirer, Riza & Gupta, Rangan & van Eyden, Reneé, 2017. "The impact of US policy uncertainty on the monetary effectiveness in the Euro area," Journal of Policy Modeling, Elsevier, vol. 39(6), pages 1052-1064.
    2. Albertazzi, Ugo & Barbiero, Francesca & Marqués-Ibáñez, David & Popov, Alexander & d’Acri, Costanza Rodriguez & Vlassopoulos, Thomas, 2020. "Monetary policy and bank stability: the analytical toolbox reviewed," Working Paper Series 2377, European Central Bank.
    3. Rosenberg, Signe, 2019. "The effects of conventional and unconventional monetary policy on house prices in the Scandinavian countries," Journal of Housing Economics, Elsevier, vol. 46(C).
    4. Mehmet Balcilar & Riza Demirer & Rangan Gupta & Reneé van Eyden, 2016. "Effectiveness of Monetary Policy in the Euro Area: The Role of US Economic Policy Uncertainty," Working Papers 201620, University of Pretoria, Department of Economics.
    5. Gupta, Rangan & Ma, Jun & Risse, Marian & Wohar, Mark E., 2018. "Common business cycles and volatilities in US states and MSAs: The role of economic uncertainty," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 317-337.
    6. Rangan Gupta & Chi Keung Marco Lau & Mark E. Wohar, 2019. "The impact of US uncertainty on the Euro area in good and bad times: evidence from a quantile structural vector autoregressive model," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 46(2), pages 353-368, May.

    More about this item

    Keywords

    Unconventional monetary policy; Economic policy uncertainty; Macroeconomic effects; OECD countries;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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