Effects of the US monetary policy shocks during financial crises – a threshold vector autoregression approach |
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Authors: | Renée Fry-Mckibbin |
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Institution: | Centre for Applied Macroeconomic Analysis, The Australian National University |
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Abstract: | This article analyzes the impact of monetary policy during periods of low and high financial stress in the US economy using a threshold vector autoregression model. There is evidence that expansionary monetary policy is effective during periods of high financial stress with larger responses having a higher proportionate effect on output. The existence of a cost channel effect during periods of high financial stress implies the existence of a short run output-inflation trade off during financial crises. Large expansionary monetary shocks also increase the likelihood of moving the economy out of a high financial stress regime. |
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Keywords: | Monetary policy financial stress threshold vector autoregression models |
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