TY  - JOUR
AU  - Gertler, Mark
AU  - Karadi, Peter
TI  - Monetary Policy Surprises, Credit Costs and Economic Activity
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 20224
PY  - 2014
Y2  - June 2014
DO  - 10.3386/w20224
UR  - http://www.nber.org/papers/w20224
L1  - http://www.nber.org/papers/w20224.pdf
N1  - Author contact info:
Mark Gertler
Department of Economics
New York University
269 Mercer Street, 7th Floor
New York, NY 10003
Tel: 212/998-8931
Fax: 212/995-4186
E-Mail: mark.gertler@nyu.edu

Peter Karadi
Research Department
Sonnemannstrasse 20
Frankfurt am Main 60640
Europe
Tel: +49-69-1344-6597
E-Mail: peter.karadi@ecb.int
M1  - published as Mark Gertler, Peter Karadi. "Monetary Policy Surprises, Credit Costs and Economic Activity," in Mark Gertler, organizer, "Lessons from the Financial Crisis for Monetary Policy" American Economic Journal: Macroeconomics, Volume 7, no. 1 (2015)

AB  - We provide evidence on the nature of the monetary transmission mechanism. To identify policy shocks in a setting with both economic and financial variables, we combine traditional monetary vector autoregression (VAR) analysis with high frequency identification (HFI) of monetary policy shocks. We first show that the shocks identified using HFI surprises as external instruments produce responses in output and inflation consistent with both textbook theory and conventional monetary VAR analysis. We also find, however, that monetary policy surprises typically produce "modest movements" in short rates that lead to "large" movements in credit costs and economic activity. The large movements in credit costs are mainly due to the reaction of both term premia and credit spreads that are typically absent from the standard model of monetary policy transmission. Finally, we show that forward guidance is important to the overall strength of the transmission mechanism.
ER  -