Monetary Policy Transmission in an Open Economy: New Data and Evidence from the United Kingdom

42 Pages Posted: 7 Sep 2016

See all articles by Ambrogio Cesa-Bianchi

Ambrogio Cesa-Bianchi

Bank of England

Gregory Thwaites

Bank of England - Monetary Analysis

Alejandro Vicondoa

European University Institute

Date Written: September 2, 2016

Abstract

This paper constructs a new series of monetary policy surprises for the United Kingdom and estimates their effects on macroeconomic and financial variables, employing a high-frequency identification procedure. First, using local projections methods, we find that monetary policy has persistent effects on real interest rates and breakeven inflation. Second, employing our series of surprises as an instrument in a SVAR, we show that monetary policy affects economic activity, prices, the exchange rate, exports and imports. Finally, we implement a test of overidentifying restrictions, which exploits the availability of the narrative series of monetary policy shocks computed by Cloyne and Huertgen (2014), and find no evidence that either set of shocks contains any endogenous response to macroeconomic variables.

Keywords: Monetary policy transmission, external instrument, high-frequency identification, structural VAR, local projections

JEL Classification: E31, E32, E43, E44, E52, E58

Suggested Citation

Cesa-Bianchi, Ambrogio and Thwaites, Gregory and Vicondoa, Alejandro, Monetary Policy Transmission in an Open Economy: New Data and Evidence from the United Kingdom (September 2, 2016). Bank of England Working Paper No. 615. Available at SSRN: https://ssrn.com/abstract=2835383 or http://dx.doi.org/10.2139/ssrn.2835383

Ambrogio Cesa-Bianchi (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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

Gregory Thwaites

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Alejandro Vicondoa

European University Institute ( email )

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014
Italy

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