Type
Working paper
Titre
The reaction function channel of monetary policy and the financial cycle
Dans
Working paper de l'OFCE
Auteur(s)
FILARDO Andrew - Bank for International Settlements (BIS) (Auteur)
HUBERT Paul - Observatoire français des conjonctures économiques (Auteur)
RUNGCHAROENKITKUL Phurichai - Bank for International Settlements (BIS) (Auteur)
Éditeur
Paris : OFCE
Collection
Working paper de l'OFCE : 16
Mots clés
Policy reaction function channel, Asset price booms, Credit booms, Monetary policy, Financial cycles, Time varying models
Résumé
EN
This paper examines whether monetary policy reaction function matters for financial stability. We measure how responsive the Federal Reserve’s policy appears to be to imbalances in the equity, housing and credit markets. We find that changes in these policy sensitivities predict the later development of financial imbalances. When monetary policy appears to respond more countercyclically to market overheating, imbalances tend to decline over time. This effect is distinct from that of current and anticipated interest rate levels – the risk-taking channel. The evidence highlights the importance of a “policy reaction function” channel of monetary policy in shaping the financial cycle.

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