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ON THE MACROECONOMIC AND WEALTH EFFECTS OF UNCONVENTIONAL MONETARY POLICY

Published online by Cambridge University Press:  18 October 2016

Fredj Jawadi ,
Ricardo M. Sousa  and
Raffaella Traverso
Fredj Jawadi
Affiliation:
University of Evry
Ricardo M. Sousa*
Affiliation:
University of Minho, NIPE and LSE Alumni Association
Raffaella Traverso
Affiliation:
University of Minho
*
Address correspondence to: Ricardo M. Sousa, University of Minho, Department of Economics and Economic Policies Research Unit (NIPE), Campus of Gualtar, 4710-057 Braga, Portugal; e-mail: [email protected], [email protected].
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Abstract

This paper focuses on the macroeconomic and wealth effects of unconventional monetary policy. To this end, we estimate a Bayesian structural vector autoregression (B-SVAR) using U.S. monthly data for the post-Lehman Brothers' collapse period. We show that a positive shock to the growth rate of central bank reserves does not have a substantial impact on industrial production or consumer prices. However, it also gives a strong boost to asset prices, which is larger in magnitude for stock prices than for housing prices. Thus, unconventional monetary policy typically operates via portfolio-rebalancing effects. A VAR counterfactual exercise confirms the role of the shocks to the growth rate of central bank reserves in explaining the dynamics of the variables included in the system, especially in the case of asset prices. Finally, additional empirical assessments uncover an important change in the conduct of monetary policy from “standard” to “exceptional” times and the suitability of our model to capture such a structural transformation.

Keywords

Unconventional Monetary PolicyMacroeconomic ImpactWealth EffectsBayesian Structural VAR
Type
Articles
Information
Macroeconomic Dynamics , Volume 21 , Special Issue 5: Recent Topics in Computational Macroeconomics , July 2017 , pp. 1189 - 1204
Copyright
Copyright © Cambridge University Press 2016 

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Footnotes

We are grateful to participants to the Third International Symposium in Computational Economics and Finance (ISCEF), organized in Paris on April 10–12 2014 (http://www.iscef.com), and two anonymous referees for their constructive comments that considerably improved this paper. Sousa acknowledges that this work has been financed by Operational Programme for Competitiveness Factors—COMPETE and by National Funds through the FCT—Portuguese Foundation for Science and Technology within the remit of the project “FCOMP-01-0124-FEDER-037268 (PEst-C/EGE/UI3182/2013).” Traverso is also highly indebted to the suggestions made by Vitor Castro.

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