How is monetary policy transmitted through its impact on mortgage borrowings? How does this transmission mechanism depend on whether mortgages are fixed or floating rate? To address these questions, we add a model of financial institutions’ behaviour to a dynamic general equilibrium model in which some households face credit constraints. We use this model to analyse the real effects of inflatio...

We investigate the relationship between uncertainty about monetary policy and its transmission mechanism, and economic fluctuations. We propose a new term structure model where the second moments of macroeconomic variables and yields can have a first-order effect on their dynamics. The data favors a model with two unspanned volatility factors that capture uncertainty about monetary policy and t...

Eurosystem …nally published its eagerly awaited in ‡ation forecast (as well as a forecast of GDP growth). It did so after having been provoked and prodded to do so, by the European Parlia-ment's Committee on Economic and Monetary A¤airs and a large number of external observers and commentators, since the announcement of the Eurosystem monetary-policy strategy in the fall of 1998. This Brie…ng P...

In this paper we re-examine commercial banks’ lending behavior taking into account changes in the stance of monetary policy in conjunction with changes in financial sector uncertainty. Using a very large data set covering all banks in the US between 1986–2000, we show that financial uncertainty has an important and significant role in the monetary policy transmission mechanism that varies acros...

The primary objective of Eurosystem monetary policy is to maintain price stability, de…ned as an annual increase in the HICP below two percent. 1 Because of the lags in the e¤ects of monetary-policy actions on aggregate demand and in ‡ation, monetary-policy actions cannot a¤ect current in ‡ation and output, nor in ‡ation or output in the near future. A rough benchmark is that monetary policy a¤...

This paper uses quarterly data from 1980 to 2004 for ASEAN-5 founder countries to estimate the weight of the Augmented Monetary Conditions Index (AMCI), and identifies the key transmission mechanism paths using Pesaran and Pesaran’s (1997) ARDL procedure, and Pesaran et al.’s (2001) bounds procedure. The roles of credit and asset price channels are assessed for aggregate demand conditions and i...

Understanding the channels through which monetary policy affects investment and other economic variables has long been a key research topic in macroeconomics. At an operational level, a “tightening” of monetary policy by a central bank implies a sale of bonds by the central bank and an accompanying reduction in bank reserves. One question for debate in academic and public policy circles is whet...