A Model of Monetary Policy Shocks for Financial Crises and Normal Conditions

Keating, John W.; Kelly, Logan; Smith, Andrew Lee; Valcarcel, Victor J.

doi:10.1111/jmcb.12522

Cited by 38 publications

(19 citation statements)

References 55 publications

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“…Thus, these results complement those presented earlier by Keating, Kelly, Smith, and Valcarcel (2014) and Belongia and Ireland (2015b, 2017, 2018, which show that information in the Divisia monetary aggregates can be useful in gauging the stance of monetary policy and estimating the effects that monetary policy has on output and inflation. Indeed, when traditional interest rate policies are constrained during exceptional periods by the by the zero lower bound, the existence of a stable demand for money function offers an alternative approach to monetary policy based on targeting a path for the quantity of money.…”

Section: Discussionsupporting

confidence: 85%

The demand for Divisia Money: Theory and evidence

Belongia

Ireland

2019

Journal of Macroeconomics

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A money-in-the-utility function model is extended to capture the distinct roles of noninterest-earning currency and interest-earning deposits in providing liquidity services to households. It implies the existence of a stable money demand relationship that links a Divisia monetary aggregate to spending or income as a scale variable and the associated Divisia usercost dual as an opportunity cost measure. Cointegrating money demand equations of this form appear in quarterly United States data spanning the period from 1967:1 through 2017:2, especially for the Divisia M2 aggregate. The identification of a stable money demand function over a period that includes the financial innovations of the 1980s and continues through the recent financial crisis and Great Recession suggests that a properly measured aggregate quantity of money can play a role in the conduct of monetary policy. That role can be of greater prominence when traditional interest rate policies are constrained by the zero lower bound. JEL Codes: C43, E41.

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Section: Discussionsupporting

confidence: 85%

The demand for Divisia Money: Theory and evidence

Belongia

Ireland

2019

Journal of Macroeconomics

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“…By estimating the responses to money and interest rate shocks in the euro area using SVAR, Darvas provides supporting evidence regarding the usefulness of Divisia monetary aggregates in assessing the impacts of monetary policy. Keating et al (2019) propose abandoning the federal funds rate as the policy indicator and using, instead, broad Divisia monetary aggregates. This approach results in monetary policy effects that are qualitatively similar to those of the case in which the federal funds rate is the policy indicator; furthermore, it allows for the measurement of the effects of monetary policy, even if the federal funds rate hits a zero lower bound.…”

Section: Literature Reviewmentioning

confidence: 99%

Do Monetary Aggregates Belong in a Monetary Model? Evidence From the Uk

Ezer¹

2020

BEMP

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Conventional monetary models focus on interest rates and omit monetary aggregatesfrom policy discussions. This paper examines whether augmenting the measure ofmonetary policy with monetary aggregates helps determine more robust links betweenpolicy and economic fluctuations. After constructing the Divisia money index for theUK, I employ structural vector autoregression to identify two different UK monetarypolicy regimes. Inclusion of this (correct) measure of money and disentangling themoney supply from demand resolve the price and liquidity puzzles. The results pointto the informational content embedded in monetary aggregates, suggesting theyshould be taken into account in evaluations of monetary policy.

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“…Therefore, the global financial crisis and the European sovereign debt crisis led to vast monetary easing policies around the globe and to the introduction of non-standard monetary policy measures called unconventional monetary policies to reduce tensions in the interbank market. Recent studies have highlighted the extensive amount of liquidity provided by the central banks of advanced countries to lower interest rates and affect the lending conditions of financial institutions (FIs) (Brana et al 2018;Hofmann 2014;Keating et al 2018;Wang 2019). Besides, central banks bought mortgagebacked securities, private sector debts, governmental bonds and followed other types of asset purchase programs at a large scale.…”

Section: Introductionmentioning

confidence: 99%

Interbank Network Characteristics, Monetary Policy ‘News’ and Sensitivity of Bank Stock Returns

2019

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This paper investigates whether interbank network topology influences the impact of monetary policy announcements on bank cumulative abnormal returns (CAR's). Although recent studies have emphasized the channels of non-conventional monetary policy actions and the sensitivity of bank stock prices to "News", how such reaction could be influenced by the shape of bank networks remains an open issue. We look at how banks' interconnectedness within interbank loan and deposit networks affects investors' expectations of future bank performance in response to monetary policy "News". Our sample consists of commercial, investment, real estate and mortgage banks in 10 Euro-zone countries. Our results show that the stock prices of banks with stronger local network positions are less sensitive to monetary policy announcements while those of banks with stronger system-wide positions are more sensitive to them. AbstractThis paper investigates whether interbank network topology influences the impact of monetary policy announcements on bank cumulative abnormal returns (CAR's). Although recent studies have emphasized the channels of non-conventional monetary policy actions and the sensitivity of bank stock prices to "News", how such reaction could be influenced by the shape of bank networks remains an open issue. We look at how banks' interconnectedness within interbank loan and deposit networks affects investors' expectations of future bank performance in response to monetary policy "News". Our sample consists of commercial, investment, real estate and mortgage banks in 10 Euro-zone countries. Our results show that the stock prices of banks with stronger local network positions are less sensitive to monetary policy announcements while those of banks with stronger system-wide positions are more sensitive to them.

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A Model of Monetary Policy Shocks for Financial Crises and Normal Conditions

Cited by 38 publications

References 55 publications

The demand for Divisia Money: Theory and evidence

The demand for Divisia Money: Theory and evidence

Do Monetary Aggregates Belong in a Monetary Model? Evidence From the Uk

Interbank Network Characteristics, Monetary Policy ‘News’ and Sensitivity of Bank Stock Returns

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