This paper analyzes the nonlinear relationship between monetary policy and financial stress and its
effects on the transmission of shocks to output. Results from a Bayesian Threshold Vector
Autoregression (TVAR) model show that the effects of monetary policy shocks on output growth
are stronger during normal times than during times of financial stress. Monetary policy shocks are
effective to ease stressed financial conditions, but have limited ability to fully contain the buildup
of vulnerabilities. These results have important policy implications for central banks’
countercyclical policies under different financial conditions and for “lean against the wind”
policies to address financial vulnerabilities.
Add to Cart by clicking price of the language and format you'd like to purchase
Available Languages and Formats
Prices in red indicate formats that are not yet available but are forthcoming.