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Does the transmission of monetary policycshocks change when inflation is high?

Author

Listed:
  • Canova, Fabio

    (BI Norwegian Business School)

  • Pérez Forero, Fernando

    (Banco Central de Reserva del Perú)

Abstract

We investigate the transmission of US monetary policy shocks in high and low inflation regimes using a Bayesian threshold vector autoregressive model. The propagation of conventional disturbances differs: the peak response of output growth and of inflation is smaller but the effects lasts longer when inflation is high. Liquidity shocks are more expansionary when inflation is high. The reaction of financial markets to the shocks account for the differences. Implications for theoretical models of monetary policy transmission are discussed.

Suggested Citation

  • Canova, Fabio & Pérez Forero, Fernando, 2024. "Does the transmission of monetary policycshocks change when inflation is high?," Working Papers 2024-008, Banco Central de Reserva del Perú.
    • Handle: RePEc:rbp:wpaper:2024-008
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    Keywords

    Threshold vector autoregressions; Monetary policy shocks; Inflation regimes; Bayesian methods; Menu costs models; rational inattention models;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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