Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Monetary Policy, Real Activity, and Credit Spreads: Evidence from Bayesian Proxy SVARs†

Monetary Policy, Real Activity, and Credit Spreads: Evidence from Bayesian Proxy SVARs† AbstractIn this paper, we develop a Bayesian framework to estimate a proxy structural vector autoregression to identify monetary policy shocks. We find that during the Great Moderation period, monetary policy shocks induce a persistent decline in real activity and tightening in financial conditions. Central to this result is a systematic component of monetary policy characterized by a direct and economically significant reaction to changes in corporate credit spreads. The failure to account for this endogenous reaction induces an attenuation in the response of all variables to monetary shocks, a result that also applies to the narrative identification of Romer and Romer (2004). (JEL C32, E23, E32, E44, E52, E58) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Monetary Policy, Real Activity, and Credit Spreads: Evidence from Bayesian Proxy SVARs†

Loading next page...
 
/lp/american-economic-association/monetary-policy-real-activity-and-credit-spreads-evidence-from-0iVZ60GTAZ
Publisher
American Economic Association
Copyright
Copyright © 2019 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20170294
Publisher site
See Article on Publisher Site

Abstract

AbstractIn this paper, we develop a Bayesian framework to estimate a proxy structural vector autoregression to identify monetary policy shocks. We find that during the Great Moderation period, monetary policy shocks induce a persistent decline in real activity and tightening in financial conditions. Central to this result is a systematic component of monetary policy characterized by a direct and economically significant reaction to changes in corporate credit spreads. The failure to account for this endogenous reaction induces an attenuation in the response of all variables to monetary shocks, a result that also applies to the narrative identification of Romer and Romer (2004). (JEL C32, E23, E32, E44, E52, E58)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Jan 1, 2019

There are no references for this article.