Monetary Policy Transmission and Trade-Offs in the United States: Old and New

39 Pages Posted: 16 Jan 2018

See all articles by Boris Hofmann

Boris Hofmann

Bank for International Settlements (BIS) - Monetary and Economic Department

Gert Peersman

Ghent University-Universiteit Gent - Department of Financial Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 28, 2017

Abstract

This study shows that, in the United States, the effects of monetary policy on credit and housing markets have become considerably stronger relative to the impact on GDP since the mid-1980s, while the effects on inflation have become weaker. Macroeconomic stabilization through monetary policy may therefore have become associated with greater fluctuations in credit and housing markets, whereas stabilizing credit and house prices may have become less costly in terms of macroeconomic volatility. These changes in the aggregate impact of monetary policy can be explained by several important changes in the monetary transmission mechanism and in the composition of macroeconomic and credit aggregates. In particular, the stronger impact of monetary policy on credit is driven by a much higher responsiveness of mortgage credit and a larger share of mortgages in total credit since the 1980s.

Keywords: monetary policy trade-offs, monetary transmission mechanism, inflation, credit, house prices

JEL Classification: E520

Suggested Citation

Hofmann, Boris and Peersman, Gert, Monetary Policy Transmission and Trade-Offs in the United States: Old and New (November 28, 2017). CESifo Working Paper Series No. 6745. Available at SSRN: https://ssrn.com/abstract=3102346

Boris Hofmann

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Gert Peersman (Contact Author)

Ghent University-Universiteit Gent - Department of Financial Economics ( email )

W. Wilsonplein 5D
Ghent, 9000
Belgium
+3292643514 (Phone)

HOME PAGE: www.feb.ugent.be/fineco/gert.html

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