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Credit Conditions and the Asymmetric Effects of Monetary Policy Shocks

Author

Listed:
  • Carriero, Andrea

    (Queen Mary University of London)

  • Galvao, Ana Beatriz

    (University of Warwick)

  • Marcellino, Massimiliano

    (Bocconi University and CEPR)

Abstract

To assess whether and how the effects of monetary policy shocks depend on credit market conditions, we introduce endogenous regime switching in the parameters of a Multivariate Autoregressive Index model. We develop a Bayesian framework to estimate dynamic responses to structural shocks using the proposed nonlinear vector autoregressive model applied to a large number of endogenous variables. The computed responses of economic activity and prices to monetary policy tightening/easing and large/small shocks are asymmetric. And these asymmetries are explained by the effect of monetary policy shocks on credit conditions and the probability of regime changes.

Suggested Citation

  • Carriero, Andrea & Galvao, Ana Beatriz & Marcellino, Massimiliano, 2018. "Credit Conditions and the Asymmetric Effects of Monetary Policy Shocks," EMF Research Papers 17, Economic Modelling and Forecasting Group.
    • Handle: RePEc:wrk:wrkemf:17
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    File URL: https://warwick.ac.uk/fac/soc/wbs/subjects/finance/mpf/working-papers/emf_wp17.pdf
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    References listed on IDEAS

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    Cited by:

    1. Martin Bruns & Michele Piffer, 2021. "Monetary policy shocks over the business cycle: Extending the Smooth Transition framework," University of East Anglia School of Economics Working Paper Series 2021-07, School of Economics, University of East Anglia, Norwich, UK..

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    More about this item

    Keywords

    Credit conditions; Multivariate Autoregressive Index models; Smooth Transition; Bayesian VARs; Large datasets; Structural Analysis; JEL Classification Numbers: E32 ; c11 ; C55;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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