The Changing Transmission Mechanism of U.S. Monetary Policy

41 Pages Posted: 10 Feb 2015

See all articles by Norhana Endut

Norhana Endut

Central Bank of Malaysia

James Morley

University of Sydney

Pao-Lin Tien

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2015

Abstract

We examine the relative importance of the interest rate, exchange rate, and bank-lending channels for the transmission mechanism of monetary policy in the United States over the past 50 years. Our analysis is based on a structural vector autoregressive model that includes bank loans and uses sign restrictions to identify monetary policy shocks. Given these identified policy shocks, we quantify the relative importance of different transmission channels via counterfactual analysis. Our results suggest a nontrivial role for the bank-lending channel at the aggregate level, but its importance has been greatly diminished since the early 1980s. Despite the timing, we find no support for a link between this change in the transmission mechanism and the concurrent reduction in output volatility associated with the Great Moderation. There is, however, some evidence of a link to the reduction in inflation volatility occurring at the same time.

Keywords: Bank-Lending Channel, Sign Restrictions, Great Moderation

JEL Classification: C32, E52

Suggested Citation

Endut, Norhana and Morley, James and Tien, Pao-Lin, The Changing Transmission Mechanism of U.S. Monetary Policy (January 1, 2015). UNSW Business School Research Paper No. 2015-03. Available at SSRN: https://ssrn.com/abstract=2562598 or http://dx.doi.org/10.2139/ssrn.2562598

Norhana Endut

Central Bank of Malaysia ( email )

Jalan Dato' Onn
P.O. Box 10922
Kuala Lumpur, 50929
Malaysia

James Morley (Contact Author)

University of Sydney ( email )

Rm 370 Merewether (H04)
Sydney, NSW 2006 2008
Australia

HOME PAGE: http://https://sites.google.com/site/jamescmorley/

Pao-Lin Tien

affiliation not provided to SSRN

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