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The Interplay Between Financial Conditions and Monetary Policy Shocks

Author

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  • Trevor Serrao

    (Federal Reserve Bank of Chicago)

  • Luca Benzoni

    (Federal Reserve Bank of Chicago)

  • Marco Bassetto

    (Federal Reserve Bank of Chicago)

Abstract

We study the interplay between monetary policy and financial conditions shocks. Such shocks have a significant and similar impact on the real economy, though with different degrees of persistence. The systematic fed funds rate response to a financial shock contributes to bringing the economy back towards trend, but a zero lower bound on policy rates can prevent this from happening, with a significant cost in terms of output and investment. In a retrospective analysis of the U.S. economy over the past 20 years, we decompose the realization of economic variables into the contributions of financial, monetary policy, and other shocks.

Suggested Citation

  • Trevor Serrao & Luca Benzoni & Marco Bassetto, 2017. "The Interplay Between Financial Conditions and Monetary Policy Shocks," 2017 Meeting Papers 1124, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:1124
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    Cited by:

    1. Rüth, Sebastian & Bachmann, Rüdiger, 2016. "Systematic Monetary Policy and the Macroeconomic Effects of Shifts in Loan-to-Value Ratios," VfS Annual Conference 2016 (Augsburg): Demographic Change 145826, Verein für Socialpolitik / German Economic Association.

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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