Working Paper: NBER ID: w9835
Authors: Claudio Raddatz; Roberto Rigobon
Abstract: This paper presents an identification strategy that allows us to study both the sectoral effects of monetary policy and the role that monetary policy plays in the transmission of sectoral shocks. We apply our methodology to the case of the U.S. and find some significant differences in the sectorial responses to monetary policy. We also find that monetary policy is a significant source of sectoral transfers. In particular, a shock to Equipment and Software investment, which we naturally identify with the High-tech crises, induces a response by the monetary authority that generates a temporary boom in Residential Investment and Durable Consumption but has almost no effect on the high-tech sector. Finally, we perform an exercise evaluating what the model predicts regarding the automatic and a more aggressive monetary policy response to a shock similar to the one that hit the U.S. in early 2001. We find that the actual drop in interest rates we have observed is in line with the predictions of the model.
Keywords: No keywords provided
JEL Codes: E43; E44; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary policy (E52) | sectoral responses (L52) |
| monetary policy shock (E39) | housing and automobiles sector response (R21) |
| monetary policy shock (E39) | high-tech sector response (L63) |
| shock to equipment and software investment (C87) | monetary policy response (E52) |
| monetary policy response (E52) | residential investment and durable consumption (E20) |
| sectoral shock (L52) | responses in the economy (E29) |