Monetary Policy Transmission
Paper Session
Saturday, Jan. 4, 2025 2:30 PM - 4:30 PM (PST)
- Chair: Sylvain Leduc, Federal Reserve Bank of San Francisco
QT vs QE: Who is In When the Central Bank is Out?
Abstract
To analyse the role of preferred habitat (PH) demand in the transmission of Quantitative Tightening (QT) and Quantitative Easing (QE) programmes, we combine granular data from the Bank of England auctions with transaction level data around the auctions. We find that when dealers traded on behalf of pension funds and insurance companies, their bidding at the QE auctions was less elastic. Instead, during QT auctions, we find no significant PH demand effects. To account for the observed asymmetric demand effects during QE and QT, we build on and extend the constant elasticity demand model by Vayanos and Vila (2021), so that demand elasticity can depend on available asset supply. As a result, the decreased role of the PH demand channel during QT can be explained by the increased government bond issuance.Quantitative Easing and Quantitative Tightening: The Money Channel
Abstract
We develop a DSGE model in which banks interact with the real economy through retail loan and deposit markets, and with each other through reserves and interbank markets. Because banks disburse loans through deposit creation, they never face financing risks (being unable to fund new loans), only refinancing risks (being unable to settle net deposit withdrawals in reserves). Deposit withdrawals, which affect the funding cost and loan extension of one part of the banking sector at the expense of another part, have highly asymmetric effects, and affect aggregate financial and real conditions. The quantity and distribution of central bank reserves, and the extent of frictions in the interbank market, critically affect the size of these effects, and can matter even in a regime of ample aggregate reserves. Under conditions of scarce reserves, countercyclical reserve injections can help to smooth the business cycle. Based on a careful calibration of the model, we evaluate the welfare effects of different countercyclical reserve quantity rules, and find that they can make sizeable contributions to welfare that are of a similar size to the Taylor rule.The Collateral Channel and Bank Credit
Abstract
We identify the firm-level and aggregate effects of the collateral channel using confidential administrative bank-firm-loan level data that allow us to condition on the pledging of real estate collateral and to control for credit demand and supply conditions. At the firm level, a 1 percentage point increase in collateral values leads to a 12 bps higher credit growth, whereas, in the cross-section of MSAs, the average elasticity of credit to collateral values is 7 times larger. Our estimates imply that as much as 37 percent of employment growth over the period from 2013 to 2019 can be attributed to the relaxation of borrowing constraints at bank-dependent borrowers.The Macroeconomic Effects of the Federal Reserve's Conventional and Unconventional Monetary Policies
Abstract
I separately identify and estimate the effects of innovations to the Federal Reserve’s federal funds rate, forward guidance, and large-scale asset purchase (LSAP) policies on the U.S. economy. I extend the high-frequency identification strategy of Bauer and Swanson (2023b) for monetary policy VARs by allowing each ofthe above policies to have possibly different economic effects. I follow Swanson (2021) and Swanson and Jayawickrema (2023) to separately identify federal funds rate, forward guidance, and LSAP components of monetary policy announcements using high-frequency interest rate changes around FOMC announcements, post-FOMC press conferences, FOMC meeting minutes releases, and speeches and testimony by the Fed Chair and Vice Chair. I find that federal funds rate shocks have had the most powerful effects on the U.S. economy, followed by shocks to forward guidance and, lastly, LSAPs.
JEL Classifications
- E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit