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Monetary Tightening and Financial Stress During Supply- versus Demand-Driven Inflation

Author

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  • F. Boissay

    (Bank for International Settlements)

  • F. Collard

    (Toulouse School of Economics (CNRS))

  • C. Manea

    (Bank for International Settlements)

  • A. Shapiro

    (Federal Reserve Bank of San Francisco)

Abstract

This paper explores the state-dependent effects of a monetary tightening on financial stress, focusing on a novel dimension: whether inflation is driven by supply versus demand factors at the time of the policy intervention. These underlying factors likely affect the economy’s financial resilience to a monetary tightening. We estimate the effects of high-frequency identified monetary surprises on financial stress, differentiating the effects based on whether inflation is supply- or demand-driven. We find that financial stress increases after a tightening when inflation is supply-driven, whereas it remains roughly unchanged or even declines when inflation is demand-driven

Suggested Citation

  • F. Boissay & F. Collard & C. Manea & A. Shapiro, 2025. "Monetary Tightening and Financial Stress During Supply- versus Demand-Driven Inflation," International Journal of Central Banking, International Journal of Central Banking, vol. 21(2), pages 147-220, April.
    • Handle: RePEc:ijc:ijcjou:y:2025:q:2:a:4
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