NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Peter Karadi

Research Department
European Central Bank
Sonnemannstrasse 20
Frankfurt am Main
60640
Germany
Tel: +49-69-1344-6597

E-Mail: peter.karadi@ecb.int

NBER Working Papers and Publications

June 2014Monetary Policy Surprises, Credit Costs and Economic Activity
with Mark Gertler: w20224
We provide evidence on the nature of the monetary transmission mechanism. To identify policy shocks in a setting with both economic and financial variables, we combine traditional monetary vector autoregression (VAR) analysis with high frequency identification (HFI) of monetary policy shocks. We first show that the shocks identified using HFI surprises as external instruments produce responses in output and inflation consistent with both textbook theory and conventional monetary VAR analysis. We also find, however, that monetary policy surprises typically produce "modest movements" in short rates that lead to "large" movements in credit costs and economic activity. The large movements in credit costs are mainly due to the reaction of both term premia and credit spreads that are typically a...

Published:

October 2013Monetary Policy Surprises, Credit Costs and Economic Activity
with Mark Gertler
in Lessons from the Financial Crisis for Monetary Policy, Mark Gertler, organizer
 
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