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Asymmetric effects of monetary policy shocks on financial stability

Author

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  • Apostolakis, George N.
  • Giannellis, Nikolaos

Abstract

This study investigates the asymmetric effects of interest rate innovations on financial stress during times of conventional and unconventional monetary policy. We employ the methodology of Kilian and Vigfusson (2011) to examine the possible asymmetries between different monetary policy stances of the Fed and the ECB. The period under examination spans from 1999 to 2023, when the two central banks were active in conducting quantitative easing (QE) operations. The evidence reveals that the effects of implementing a contractionary or an expansionary monetary policy on financial stress are sign- and size-specific.

Suggested Citation

  • Apostolakis, George N. & Giannellis, Nikolaos, 2024. "Asymmetric effects of monetary policy shocks on financial stability," The Journal of Economic Asymmetries, Elsevier, vol. 30(C).
    • Handle: RePEc:eee:joecas:v:30:y:2024:i:c:s170349492400029x
    DOI: 10.1016/j.jeca.2024.e00380
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    Keywords

    FSI; CISS; Financial stability; Shadow rates; UMP; COVID-19; Asymmetries; Net increase; VAR; Nonlinear; US; Eurozone; Zero lower bound;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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