Monetary policy surprises, credit costs, and economic activity

Mark Gertler, Peter Karadi

    Research output: Contribution to journalArticle

    Abstract

    We provide evidence on the transmission of monetary policy shocks in a setting with both economic and financial variables. We first show that shocks identified using high frequency surprises around policy announcements as external instruments produce responses in output and inflation that are typical in monetary VAR analysis. We also find, however, that the resulting " modest" movements in short rates lead to " large" movements in credit costs, which are due mainly to the reaction of both term premia and credit spreads. Finally, we show that forward guidance is important to the overall strength of policy transmission.

    Original languageEnglish (US)
    Pages (from-to)44-76
    Number of pages33
    JournalAmerican Economic Journal: Macroeconomics
    Volume7
    Issue number1
    DOIs
    StatePublished - 2015

    Fingerprint

    Surprise
    Credit
    Costs
    Economic activity
    Monetary policy
    Financial variables
    Credit spreads
    Economic variables
    Announcement
    Monetary policy shocks
    Guidance
    Inflation
    VAR analysis
    Short rate

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance(all)

    Cite this

    Monetary policy surprises, credit costs, and economic activity. / Gertler, Mark; Karadi, Peter.

    In: American Economic Journal: Macroeconomics, Vol. 7, No. 1, 2015, p. 44-76.

    Research output: Contribution to journalArticle

    Gertler, Mark ; Karadi, Peter. / Monetary policy surprises, credit costs, and economic activity. In: American Economic Journal: Macroeconomics. 2015 ; Vol. 7, No. 1. pp. 44-76.
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