6533b837fe1ef96bd12a2784
RESEARCH PRODUCT
Unconventional monetary policy reaction functions: evidence from the US
Fredj JawadiLuca AgnelloGilles DufrénotRicardo M. SousaVitor CastroVitor Castrosubject
InflationEconomics and Econometricsasset pricescentral bank reservesmedia_common.quotation_subjectshadow short rateunconventional monetary policy reaction functionMonetary economicsasset price0502 economics and businessSystemic riskAsset (economics)050207 economicscentral bank reserveinflationShadow (psychology)media_common050208 finance05 social sciencesMonetary policy1. No povertyJEL: E - Macroeconomics and Monetary Economics/E.E5 - Monetary Policy Central Banking and the Supply of Money and Credit/E.E5.E51 - Money Supply • Credit • Money MultipliersJEL: I - Health Education and Welfare/I.I2 - Education and Research Institutions/I.I2.I21 - Analysis of Education[SHS.ECO]Humanities and Social Sciences/Economics and Financeterm spreadOutput gap8. Economic growthFinancial crisisShort ratenonlinear modeloutput gapJEL: E - Macroeconomics and Monetary Economics/E.E4 - Money and Interest Rates/E.E4.E43 - Interest Rates: Determination Term Structure and Effectsnonlinear modelsSocial Sciences (miscellaneous)Analysisdescription
Abstract We specify unconventional monetary policy reaction functions for the Fed using linear and nonlinear econometric frameworks. We find that nonstandard policy measures are largely driven by the dynamics of inflation and the output gap, with the effect being particularly strong during QE rounds. Moreover, we uncover the presence of asymmetry and regime dependence in central bank’s actions since the global financial crisis, especially concerning the response of the term spread and the shadow short rate to the growth rate of central bank reserves. From a policy perspective and given the lack of a systematic response of monetary policy to asset price growth in nonstandard times, our findings seem to corroborate the view that concerns about asset price bubbles, financial sector pro-cyclicality and systemic risk should be part of the macro-prudential policy toolkit.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2020-09-01 |