UID:
edocfu_9959301364902883
Format:
1 online resource (35 pages)
ISBN:
1-4843-1422-0
,
1-4843-1427-1
Series Statement:
IMF Working Papers
Content:
This paper analyzes the nonlinear relationship between monetary policy and financial stress and its effects on the transmission of shocks to output. Results from a Bayesian Threshold Vector Autoregression (TVAR) model show that the effects of monetary policy shocks on output growth are stronger during normal times than during times of financial stress. Monetary policy shocks are effective to ease stressed financial conditions, but have limited ability to fully contain the buildup of vulnerabilities. These results have important policy implications for central banks’ countercyclical policies under different financial conditions and for “lean against the wind” policies to address financial vulnerabilities.
Note:
Cover -- Contents -- Abstract -- I. Introduction -- II. Overview of the Literature -- A. Regime-Dependent Monetary Transmission -- B. Monetary Policy and Financial Stress -- III. Empirical Approach -- A. Econometric Model -- B. Data -- IV. Results -- A. Financial Stress Regimes -- B. Transmission Mechanism to Output Growth -- C. Monetary Policy and Financial Stress -- V. Robustness Checks -- A. Alternative FSI Thresholds -- B. Testing Regimes -- VI. Conclusions -- References -- Table -- 1. Deviance Information Criterion -- Figures -- 1. Financial Stress Regimes Determined by Average Distance-to-Default -- 2. Impulse Response Functions-Impact of a 100 bps Monetary Policy Shock on Output Growth -- 3. Differences Across Regimes-Difference in Impact of a 100 bps Monetary Policy Shock on Output Growth Threshold Variable: ADD -- 4. Impulse Response Functions-Impact of a 100 bps Monetary Policy Shock on Average Distance-to-Default -- 5. Differences Across Regimes-Difference in Impact of 100 bps Monetary Policy Shock on ADD -- 6. Maximum Impact of a 100 bps Monetary Policy Shock on Median-Average Distance-to-Default Across Regimes -- 7. Financial Stress Regimes Determined by Financial Stress Index -- 8. Impulse Response Functions-Impact of a 100 bps Monetary Policy Tightening on Output Growth Threshold Variable: FSI -- 9. Impulse Response Functions-Impact of a 100 bps Monetary Policy Shock on FSI -- Appendices -- I. Bayesian Threshold Vector Autoregression Model -- II. Data Sources and Definitions -- III. Supplementary Figures -- Appendix Tables -- 1. Macrofinancial Data -- 2. Financial Companies' Names and ISIN Codes.
Additional Edition:
ISBN 1-4843-1379-8
Language:
English
