Effects of US Monetary Policy Shocks during Financial Crises ― A Threshold Vector Autoregression Approach

59 Pages Posted: 10 May 2016

See all articles by Renee Fry-McKibbin

Renee Fry-McKibbin

Australian National University (ANU) - Crawford School of Public Policy; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA), Crawford School of Public Policy

Jasmine Zheng

Australian National University (ANU)

Date Written: May 8, 2016

Abstract

This paper 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.

Keywords: Monetary Policy, Financial Stress, Threshold Vector Autoregression Models

JEL Classification: F44, E44, E52

Suggested Citation

Fry-McKibbin, Renee and Zheng, Jasmine, Effects of US Monetary Policy Shocks during Financial Crises ― A Threshold Vector Autoregression Approach (May 8, 2016). CAMA Working Paper No. 25/2016 , Available at SSRN: https://ssrn.com/abstract=2777283 or http://dx.doi.org/10.2139/ssrn.2777283

Renee Fry-McKibbin (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

7 Liversidge Street
Lennox Crossing
Canberra, ACT 0200
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA), Crawford School of Public Policy ( email )

Canberra, Australian Capital Territory 0200
Australia

Jasmine Zheng

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

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