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Cited by 1,455Monetary Policy and Economic ImpactMarket Dynamics and VolatilityEconomic theories and models

Monetary Policy Surprises, Credit Costs, and Economic Activity

Gertler, Mark, Karadi, Peter·2015·American Economic Journal: Macroeconomics
DOI 10.1257/mac.20130329
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Abstract

We provide evidence on the transmission of monetary policy shocks in a setting with both economic and financial variables. We first show that shocks identified using high frequency surprises around policy announcements as external instruments produce responses in output and inflation that are typical in monetary VAR analysis. We also find, however, that the resulting “modest” movements in short rates lead to “large” movements in credit costs, which are due mainly to the reaction of both term premia and credit spreads. Finally, we show that forward guidance is important to the overall strength of policy transmission. (JEL E31, E32, E43, E44, E52, G01)

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Claims other papers make about this one

Each is checked against this paper’s own text: does it say what the citing paper says it does?

  • The EBP (corporate spread) decreases significantly after a tweet shock.

    “Figure 4 also shows that EBP (corporate spread) decreases significantly after a tweet shock”

    From Threats to central bank independence: High-frequency identification with twitter (2023) · cites this paper as Gertler and Karadi (2015)

    In “Results from the Simple VAR” (p. 20), the paper reports a statistically significant decline in the excess bond premium under conventional timing restrictions. It does not study tweet shocks; its preferred monetary-surprise analysis instead finds a significant increase in the premium (pp. 20, 22). The reported decline therefore does not support the claim’s tweet-shock condition. (LLM, conf=0.84)

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Cites

Flagged first, then by citations

Research works printed but not linked: 30

  1. Fabio C Bagliano and Carlo A Favero. Information from financial markets and VAR measures of monetary policy. European Economic Review , 43(4):825-837, 1999.
  2. S Mahdi Barakchian and Christopher Crowe. Monetary policy matters: Evidence from new shocks data. Journal of Monetary Economics , 60(8):950-966, 2013.
  3. Ben Bernanke, Vincent Reinhart, and Brian Sack. Monetary policy alternatives at the zero bound: An empirical assessment. Brookings Papers on Economic Activity , 2004(2):1-100, 2004.
  4. Ben S Bernanke and A. S. Blinder. The federal funds rate and the channels of monetary transmission. American Economic Review , 82:901-921, 1992.
  5. Jean Boivin, Michael T. Kiley, and Frederic S. Mishkin. How has the monetary transmission mechanism evolved over time? volume 3 of Handbook of Monetary Economics , pages 369 - 422. Elsevier, 2010.
  6. Jeffrey R Campbell, Charles L Evans, Jonas DM Fisher, Alejandro Justiniano, Charles W Calomiris, and Michael Woodford. Macroeconomic effects of federal reserve forward guidance. Brookings Papers on Economic Activity , pages 1-80, 2012.
  7. Lawrence J Christiano, Martin Eichenbaum, and Charles Evans. The effects of monetary policy shocks: Evidence from the flow of funds. The Review of Economics and Statistics , pages 16-34, 1996.
  8. Lawrence J Christiano, Martin Eichenbaum, and Charles L Evans. Nominal rigidities and the dynamic effects of a shock to monetary policy. The Journal of Political Economy , 113(1):1-45, 2005.
  9. Lawrence J Christiano, Roberto Motto, and Massimo Rostagno. Risk shocks. The American Economic Review , 104(1):27-65, 2014.
  10. Richard Clarida, Jordi Gali, and Mark Gertler. Monetary policy rules and macroeconomic stability: evidence and some theory. The Quarterly Journal of Economics , 115(1):147-180, 2000.
  11. John H. Cochrane and Monika Piazzesi. The Fed and interest rates-a highfrequency identification. American Economic Review , 92(2):90-95, 2002.
  12. Jon Faust, Eric T Swanson, and Jonathan H Wright. Identifying VARs based on high frequency futures data. Journal of Monetary Economics , 51(6):1107-1131, 2004.
  13. Mark Gertler and Peter Karadi. A model of unconventional monetary policy. Journal of Monetary Economics , 58(1):17-34, 2011.
  14. Mark Gertler and Peter Karadi. QE 1 vs. 2 vs. 3...: A framework for analyzing large-scale asset purchases as a monetary policy tool. International Journal of Central Banking , 9(1):5-53, 2013.
  15. Simon Gilchrist and Egon Zakrajsek. Credit spreads and business cycle fluctuations. The American Economic Review , 102(4):1692-1720, 2012.
  16. Refet S G¨ urkaynak, Brian Sack, and Eric T Swanson. Do actions speak louder than words? the response of asset prices to monetary policy actions and statements. International Journal of Central Banking , 2005.
  17. Refet S G¨ urkaynak, Brian Sack, and Jonathan H Wright. The us treasury yield curve: 1961 to the present. Journal of Monetary Economics , 54(8):2291-2304, 2007.
  18. Refet S G¨ urkaynak, Brian Sack, and Jonathan H Wright. The tips yield curve and inflation compensation. American Economic Journal: Macroeconomics , pages 70-92, 2010.
  19. James D Hamilton. Daily monetary policy shocks and new home sales. Journal of Monetary Economics , 55(7):1171-1190, 2008.
  20. James D Hamilton. Daily changes in fed funds futures prices. Journal of Money, Credit and Banking , 41(4):567-582, 2009.
  21. Kenneth N Kuttner. Monetary policy surprises and interest rates: Evidence from the fed funds futures market. Journal of Monetary Economics , 47(3):523-544, 2001.
  22. Karel Mertens and Morten O Ravn. The dynamic effects of personal and corporate income tax changes in the united states. American Economic Review , 103(4): 1212-47, 2013.
  23. Monika Piazzesi and Eric T Swanson. Futures prices as risk-adjusted forecasts of monetary policy. Journal of Monetary Economics , 55(4):677-691, 2008.
  24. Christina D. Romer and David H. Romer. Federal reserve information and the behavior of interest rates. American Economic Review , 90(3):429-457, 2000.
  25. Christina D Romer and David H Romer. A new measure of monetary shocks: Derivation and implications. American Economic Review , pages 1055-1084, 2004.
  26. Glenn D Rudebusch. Do measures of monetary policy in a VAR make sense? International Economic Review , pages 907-931, 1998.
  27. Frank Smets and Raf Wouters. Shocks and frictions in us business cycles: A bayesian DSGE approach. The American Economic Review , 97(3):586-606, 2007.
  28. James H Stock and Mark W Watson. Disentangling the channels of the 2007-09 recession. Brookings Papers on Economic Activity , 2012(1):81-135, 2012.
  29. James H Stock, Jonathan H Wright, and Motohiro Yogo. A survey of weak instruments and weak identification in generalized method of moments. Journal of Business & Economic Statistics , 20(4), 2002.
  30. Eric T. Swanson and John C. Williams. Measuring the effect of the zero lower bound on medium- and longer-term interest rates. American Economic Review , forthcoming.

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Authors
Gertler, M., & Karadi, P.
Affiliations
  • National Bureau of Economic Research (US)
  • DG Research, European Central Bank, Neue Mainzer Strasse 66, Frankfurt am Main, 60323, Germany, and Centre for Economic Policy Research (CEPR) (e-mail: )
Venue
American Economic Journal: Macroeconomics
Publisher
American Economic Association
Published
2015-01-01
Volume
7
Issue
1
Pages
44-76
ISSN
  • 1945-7707 (ISSN-L)
  • 1945-7715
DOI
10.1257/mac.20130329
OpenAlex
W2067094520
Cited by
1,455
References
1
Citations by year
2026: 81 · 2025: 167 · 2024: 177 · 2023: 172 · 2022: 169 · 2021: 189 · 2020: 136 · 2019: 106 · 2018: 88 · 2017: 67 · 2016: 54 · 2015: 33 · 2014: 10 · 2013: 3 · 2012: 2
FWCI
220.90
Type
journal article
Language
en
Open access
closed
Locations
  • American Economic Journal Macroeconomics (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
Topics
  • Social Sciences › Economics, Econometrics and Finance › General Economics, Econometrics and Finance › Monetary Policy and Economic Impact
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Market Dynamics and Volatility
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic theories and models
Keywords
monetary policy transmission, monetary policy surprises, policy announcements, cost of credit, term premia, credit spreads, short rate, forward guidance

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