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The determinants of the industry effects of US monetary policy

  • I. Arnold
  • C.J.M. Kool
  • K. Raabe

Abstract This paper employs US state level data on manufacturing and non-manufacturing industries to present new evidence on the transmission of US interest rate shocks. Part one of our study analyzes the interest rate sensitivity of industry earnings over the period 1958-2000/01. The vector autoregressive evidence points to differences in the interest rate sensitivity of industries and, hence, to the existence of an industry channel of monetary transmission. Building on these results, the second part investigates whether the industry characteristics business size and capital intensity can explain the cross-industry heterogeneity of monetary policy effects. We find that the conclusions strongly depend on the treatment of the mining industry. Including a dummy variable for the mining industry significantly reduces the explanatory power of business size but brings to the fore the effect of capital intensity. Keywords : monetary transmission, industry effects, regional effects, business size

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File URL: http://dspace.library.uu.nl/bitstream/handle/1874/14988/05-11.pdf
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Paper provided by Utrecht School of Economics in its series Working Papers with number 05-11.

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Date of creation: 2005
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Handle: RePEc:use:tkiwps:0511
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  1. Peersman, Gert & Smets, Frank, 2002. "The industry effects of monetary policy in the euro area," Working Paper Series 0165, European Central Bank.
  2. Skander J. Van den Heuvel, 2002. "Does bank capital matter for monetary transmission?," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 259-265.
  3. Dedola, L. & Lippi, F., 2000. "The Monetary Transmission Mechanism: Evidence from the Industries of Five OECD Countries," Papers 389, Banca Italia - Servizio di Studi.
  4. Mojon, Benoît, 2000. "Financial structure and the interest rate channel of ECB monetary policy," Working Paper Series 0040, European Central Bank.
  5. Mark Gertler & Simon Gilchrist, 1993. "The role of credit market imperfections in the monetary transmission mechanism: arguments and evidence," Finance and Economics Discussion Series 93-5, Board of Governors of the Federal Reserve System (U.S.).
  6. Ivo J. M. Arnold & Evert B. Vrugt, 2004. "Firm Size, Industry Mix and the Regional Transmission of Monetary Policy in Germany," German Economic Review, Verein für Socialpolitik, vol. 5(1), pages 35-59, 02.
  7. Favero, Carlo A. & Flabbi, Luca & Giavazzi, Francesco, 1999. "The Transmission Mechanism of Monetary Policy in Europe: Evidence from Banks' Balance Sheets," CEPR Discussion Papers 2303, C.E.P.R. Discussion Papers.
  8. Anil K. Kashyap & Jeremy C. Stein, 1997. "The role of banks in monetary policy: a survey with implications for the European Monetary Union," Economic Perspectives, Federal Reserve Bank of Chicago, issue Sep, pages 2-18.
  9. Kakes, Jan & Sturm, Jan-Egbert & Philipp Maier, 1999. "Monetary transmission and bank lending in Germany," CCSO Working Papers 199906, University of Groningen, CCSO Centre for Economic Research.
  10. Kenneth N. Kuttner & Patricia C. Mosser, 2002. "The monetary transmission mechanism: some answers and further questions," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 15-26.
  11. Michael Ehrmann, 2004. "Firm Size and Monetary Policy Transmission – Evidence from German Business Survey Data," CESifo Working Paper Series 1201, CESifo Group Munich.
  12. Gerald A. Carlino & Robert H. DeFina, 1999. "Do states respond differently to changes in monetary policy?," Business Review, Federal Reserve Bank of Philadelphia, issue Jul, pages 17-27.
  13. Luca Dedola & Francesco Lippi, 2000. "The Monetary Transmission Mechanism: Evidence from the Industry Data of Five OECD Countries," Econometric Society World Congress 2000 Contributed Papers 1833, Econometric Society.
  14. Gerald A. Carlino & Robert DeFina, 1998. "Monetary policy and the U.S. and regions: some implications for European Monetary Union," Working Papers 98-17, Federal Reserve Bank of Philadelphia.
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