Monetary Policy Transmission

Volha Audzei · Ivan Sutóris

Audzei and Sutóris ask whether inflation-targeting monetary policy affects households' incentives to invest in energy conservation, and whether the standard central bank response to energy price …

Sanford J. Grossman · Laurence Weiss

Grossman and Weiss build a transactions-based model of money demand -- a hybrid of Clower's (1967) cash-in-advance constraint and the Baumol-Tobin inventory-theoretic approach -- in which going to the …

Jean Boivin · Marc Giannoni

This 2002 FRBNY Economic Policy Review paper by Jean Boivin and Marc Giannoni asks whether the transmission of monetary policy shocks to U.S. output and inflation changed after the early 1980s, and if …

Wouter J. den Haan · Steven W. Sumner · Guy M. Yamashiro

This 2007 Journal of Monetary Economics paper by Wouter den Haan, Steven Sumner, and Guy Yamashiro asks whether the three main categories of U.S. bank loans -- commercial and industrial (C&I), real …

Merike Kukk · Jan Toczynski · Christoph Basten

Households are exposed to different rates of inflation because they buy different things, and using anonymised quarterly bank-account records for 89,507 individuals at one of Estonia's leading …

Valentina Bruno · Hyun Song Shin

Bank leverage is the linchpin of a risk-taking channel through which monetary policy travels across borders: in a pre-crisis quarterly VAR a tighter US policy rate raises the VIX, lowers broker-dealer …

Hanfeng Chen · Maria Elena Filippin

The paper analyzes the implications of introducing a retail central bank digital currency (CBDC) that competes with commercial bank deposits for household liquidity, in a model where banks must post …

Ben S. Bernanke · Mark Gertler · Simon Gilchrist

Embedding a costly-state-verification debt contract -- in which a borrower's external finance premium depends inversely on net worth -- into an otherwise standard New Keynesian model, this chapter …

Stefania D'Amico · Iryna Kaminska

Using security-level data on individual corporate bond prices and the Bank of England's published purchase quantities across its gilt purchase programs (QE1: £200bn, QE2: £125bn, QE3: £50bn, QE4: …

Stephen G. Cecchetti

This 1995 Federal Reserve Bank of St. Louis Review paper by Stephen Cecchetti surveys the empirical literature attempting to distinguish two competing theories of how monetary policy affects the real …

David B. Gross · Nicholas S. Souleles

Using a panel of about 24,000 individual bankcard accounts from several large U.S. card issuers (January 1995-January 1998), Gross and Souleles test whether consumer debt responds to changes in credit …

Gita Gopinath · Emine Boz · Camila Casas · Federico J. Díez · Pierre-Olivier Gourinchas · Mikkel Plagborg-Møller

Because most trade is invoiced in a few dominant currencies rather than in the producer's or the destination's currency, it is the dollar exchange rate and not the bilateral one that drives import …

Lawrence J. Christiano · Mathias Trabandt · Karl Walentin

This 2011 Handbook of Monetary Economics chapter is a selective survey and original empirical estimation of medium-scale New Keynesian DSGE models for monetary policy analysis. It first works through …

Adrien Auclert · Matthew Rognlie · Martin Souchier · Ludwig Straub

Introducing heterogeneous households with realistically high marginal propensities to consume into an otherwise-standard small open economy New Keynesian model creates a powerful real income channel …

John B. Taylor

Building a simple rational-expectations model of the federal funds market -- a lagged Trading Desk "reaction function" for the supply of Fed balances combined with a demand for balances that depends …

Pablo Ottonello · Thomas Winberry

Combining high-frequency-identified monetary shocks with Compustat data, the paper shows that low-default-risk firms -- those with lower leverage and higher distance to default -- are substantially …

Priit Jeenas

Contrary to treating corporate cash as simply negative debt, this paper shows that firms' liquid-asset holdings, not their leverage, robustly predict which firms cut investment most after a monetary …

Adrien Auclert · Matthew Rognlie · Ludwig Straub

Auclert, Rognlie, and Straub review a decade of Heterogeneous-Agent New Keynesian (HANK) research through a single canonical model, showing that monetary and balanced-budget fiscal policy have …

Davide Debortoli · Jordi Galí

By building three nested HANK economies and then constructing a deliberately simple two-agent counterpart for each, this paper argues that what household heterogeneity does to aggregate output can be …

Ben S. Bernanke · Mark Gertler

This 1995 Journal of Economic Perspectives paper by Ben Bernanke and Mark Gertler surveys the "credit channel" of monetary policy transmission — described explicitly as an amplifying mechanism, not an …

Lawrence J. Christiano · Martin Eichenbaum

Christiano and Eichenbaum confront a specific shortcoming of the general-equilibrium "liquidity effect" models that had recently been developed to explain why an expansionary monetary shock drives …

Javier Bianchi · Louphou Coulibaly

The paper develops a tractable open-economy New Keynesian model with nominal rigidities and an occasionally binding zero lower bound (ZLB) to study how monetary policy and macroprudential policy …

Alessia De Stefani · Rui C. Mano

This paper uses instrumental-variable local projections (IV-LP) on an unbalanced panel of up to 35 countries over approximately two decades to establish two interconnected findings about fixed-rate …

Adrien Auclert · Hugo Monnery · Matthew Rognlie · Ludwig Straub

In a heterogeneous-agent New Keynesian model of an energy-importing small open economy, realistically high MPCs combined with a realistically low elasticity of substitution between energy and other …

Adrien Auclert · Matthew Rognlie · Ludwig Straub

Estimating a heterogeneous-agent New Keynesian model with "sticky expectations" that simultaneously matches households' large immediate marginal propensities to consume and the hump-shaped aggregate …

Greg Kaplan · Giovanni L. Violante

This essay argues that the Great Recession exposed how badly representative-agent models capture household consumption behavior, and outlines the emerging Heterogeneous Agent New Keynesian (HANK) …

Leonall C. Andersen · Jerry L. Jordan

This 1968 Federal Reserve Bank of St. Louis Review article by Leonall Andersen and Jerry Jordan — later known as the "St.

Ricardo Lagos

The cashless-limiting result in Woodford (1998) — that as money velocity diverges the allocation of a monetary economy converges to that of the corresponding economy without money — is the theoretical …

Greg Kaplan · Benjamin Moll · Giovanni L. Violante

This paper builds a two-asset Heterogeneous Agent New Keynesian (HANK) model matching the empirical joint distribution of income, liquid, and illiquid wealth, and finds that the indirect effect of an …

Michael Woodford

Against fears that electronic money will erode central banks' monopoly over a monetary base and so undermine their power to control inflation, Woodford argues that monetary policy works through …

Davide Debortoli · Jordi Galí

This paper asks how much of the HANK literature's message about aggregate behaviour survives in a far simpler model, and answers by first identifying exactly what heterogeneity does.

Mark Gertler · Simon Gilchrist

This 1994 Quarterly Journal of Economics paper by Mark Gertler and Simon Gilchrist asks whether small manufacturing firms bear a disproportionate share of the manufacturing decline that follows …

Zhengyang Chen · Victor J. Valcarcel

This 2021 Journal of Economic Dynamics and Control paper by Zhengyang Chen and Victor Valcarcel shows that the Wu-Xia (2016) shadow federal funds rate — a standard modern-sample proxy for the stance …

Fiorella De Fiore · Marie Hoerova · Ciaran Rogers · Harald Uhlig

The paper studies the euro area interbank money markets during the global financial crisis (2007–09) and sovereign debt crisis (2010–15), documenting four empirical regularities and building a …

Fernando Alvarez · Andrew Atkeson · Patrick J. Kehoe

Alvarez, Atkeson, and Kehoe build a cash-in-advance model in which households face a fixed real cost to transfer funds between a goods market and an asset market, so that in any period only a fraction …

Oleg Itskhoki · Dmitry Mukhin

The Mussa (1986) puzzle is the empirical observation of a sharp, simultaneous increase in the volatility of both nominal and real exchange rates following the end of the Bretton Woods fixed exchange …

Thomas Winberry · Adrien Auclert · Matthew Rognlie · Ludwig Straub

Winberry, Auclert, Rognlie, and Straub extend the Heterogeneous-Agent New Keynesian framework from households to firms, building a canonical heterogeneous-firm model with financial frictions in which …

Robert E. Lucas, Jr.

Lucas's 1995 Nobel Prize lecture asks why changes in the quantity of money seem, from David Hume onward, to be both neutral "units changes" in the long run and yet a source of real stimulus or …

Karl Brunner

This 1961 American Economic Association Papers and Proceedings essay by Karl Brunner argues that evaluating monetary policy's effectiveness requires separately and rigorously assessing two distinct …

V. V. Chari · Patrick J. Kehoe · Ellen R. McGrattan

Staggered price-setting was long hoped to turn a short spell of exogenous price stickiness into a long spell of endogenous stickiness, and so into persistent output movements after a monetary shock. …

Frederic S. Mishkin

This 1995 Journal of Economic Perspectives paper by Frederic Mishkin is the introduction to a JEP symposium on the monetary transmission mechanism, and it contains no original data or estimation of …

Marvin J. Barth III · Valerie A. Ramey

This 2001 NBER Macroeconomics Annual paper by Marvin Barth and Valerie Ramey tests whether monetary policy operates through a supply-side "cost channel" -- in which a monetary contraction raises …

Bruno Cavani · Samer F. Shousha

Textbook Mundell–Fleming logic says a weaker local currency should be expansionary through net exports, yet in emerging market economies (EMEs) a stronger US dollar has been consistently associated …

Panagiotis Avramidis · George G. Pennacchi

Using 2001-2022 annual data on U.S. commercial and savings banks matched with county-level demographic data, this paper shows that banks operating in areas with older populations—measured by the …

Edward Nelson

This 2003 Journal of Monetary Economics paper by Edward Nelson (Bank of England) asks whether the New Keynesian models that had displaced money-focused monetarist analysis by the early 2000s still …

Bernardo Morais · José-Luis Peydró · Jessica Roldán-Peña · Claudia Ruiz-Ortega

Using the universe of business loans in Mexico matched to firm and bank balance sheets, this paper shows that each foreign monetary policy moves local credit supply mainly through banks headquartered …

Milton Friedman

This 1961 Journal of Political Economy paper is Milton Friedman's reply to J. M.

John B. Taylor

This 1995 Journal of Economic Perspectives paper by John B. Taylor lays out an empirical framework for the monetary transmission mechanism and asks what it implies for the choice between fixed and …

Kenneth N. Kuttner · Patricia C. Mosser

This 2002 FRBNY Economic Policy Review article by Kenneth Kuttner and Patricia Mosser is a conference overview, not an original empirical study: it synthesizes papers presented at the Federal Reserve …

Miles S. Kimball

This 1995 *Journal of Money, Credit and Banking* paper (circulated as NBER Working Paper 5046, February 1995) builds what the author calls a "Neomonetarist" model -- a hybrid that keeps a Real …

John H. Cochrane

Using band-pass spectral filters on weekly U.S. data from the Federal Reserve's 1979-82 nonborrowed-reserve-targeting period, Cochrane finds a negative short-run correlation between money growth and …

C. Bora Durdu · Alex Martin · Ilknur Zer

US monetary tightening raises the probability of a banking crisis abroad, but only where the exposure to the United States is direct -- heavy bilateral trade or large dollar-denominated liabilities. …

Andrés Rodríguez-Clare · Mauricio Ulate · José P. Vásquez

Standard international trade models assume perfectly flexible prices and full employment. This paper introduces nominal rigidities (downward wage rigidity) into a quantitative trade model and asks how …

Ralph Luetticke

In a two-asset HANK model where households hold liquid bonds and illiquid capital, monetary policy transmits mainly through investment rather than consumption, but a tightening redistributes income …

Silvia Miranda-Agrippino · Hélène Rey

A single global factor extracted from a large panel of risky asset prices traded around the world falls sharply after a US monetary contraction, alongside deleveraging by global banks, a rise in …

David Bügel · Albert Hidalgo · Ralph Luetticke

Asking whether unconventional monetary policy works differently from an interest-rate cut has been hard to answer because the two kinds of policy have been measured with different tools, so any …

Stephen G. Cecchetti · Tommaso Mancini-Griffoli · Machiko Narita · Ratna Sahay

Across nearly 1,000 listed financial firms in 21 countries, prolonged monetary easing raises leverage -- and for non-US firms, sustained easing in the United States raises leverage by more than easing …

Anil K. Kashyap · Jeremy C. Stein

This 2000 *American Economic Review* paper (circulated as NBER Working Paper 6056, June 1997, under the title "What Do a Million Banks Have to Say About the Transmission of Monetary Policy?") tests …