Tommaso Tornese
- 21 March 2024
- WORKING PAPER SERIES - No. 2919Details
- Abstract
- We use nonlinear empirical methods to uncover non-linearities in the propagation of monetary policy shocks. We find that the transmission on output, goods prices and asset prices is stronger in a low growth regime, contrary to the findings of Tenreyro and Thwaites (2016). The impact is stronger on private investment and durables and milder on the consumption of nondurable goods and services. In periods of low growth, a contractionary monetary policy implies lower expected Treasury rates and higher premia along the entire Treasury yield curve. Similarly, the corporate excess bond premium rises and the stock market drops substantially during recessions. We use the monetary policy surprises and their predictors provided by Bauer and Swanson (2023a), and identify an additional predictor, the National Financial Condition Index (NFCI), which is relevant in the nonlinear setting. A Threshold VAR, a Smooth-Transition VAR and nonlinear local projection methods all corroborate the findings.
- JEL Code
- C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles
- 31 July 2023
- WORKING PAPER SERIES - No. 2834Details
- Abstract
- We use a Bayesian Threshold Vector Autoregression model identified through sign and narrative restrictions to uncover non-linearities in the propagation of energy supply shocks. We find that the transmission of energy supply shocks on consumer prices is stronger in high-inflation regimes, supporting state-dependent models. The faster pass-thorough of energy supply shocks to consumer prices (excl. energy) cushions the drop in output in the short term. Energy supply shocks have a stronger impact on output in the medium-term with manufacturing being more adversely affected than GDP. Large energy supply shocks shift the economy to another state but after two and half years the mean-reversion to lower inflation implies a more moderate transmission mechanism, highlighting the importance of state-dependent impulse responses. The energy supply shocks between July 2021 and June 2022 are massive amounting to 3.9 standard deviations on average each month.
- JEL Code
- C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles