How to order
IMF Publications

Working Papers in full text
2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 All


Other research-related activities and publications of the IMF can be found at IMF Research

Free Email Notification

Receive emails when we post new items of interest to you.

Subscribe or Modify your profile



Monetary Policy and Balance Sheets

Author/Editor: Deniz Igan | Alain N. Kabundi | Francisco Nadal-De Simone | Natalia T. Tamirisa
Authorized for Distribution: July 3, 2013
Electronic Access: Free Full Text (PDF file size is 1,180KB)
Use the free Adobe Acrobat Reader to view this PDF file.
 
Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper evaluates the strength of the balance sheet channel in the U.S. monetary policy transmission mechanism over the past three decades. Using a Factor-Augmented Vector Autoregression model on an expanded data set, including sectoral balance sheet variables, we show that the balance sheets of various economic agents act as important links in the monetary policy transmission mechanism. Balance sheets of financial intermediaries, such as commercial banks, asset-backed-security issuers and, to a lesser extent, security brokers and dealers, shrink in response to monetary tightening, while money market fund assets grow. The balance sheet effects are comparable in magnitude to the traditional interest rate channel. However, their economic significance in the run-up to the recent financial crisis was small. Large increases in interest rates would have been needed to avert a rapid rise of house prices and an unsustainable expansion of mortgage credit, suggesting an important role for macroprudential policies.
 
Order a print copy
Series: Working Paper No. 13/158
Subject(s): Monetary transmission mechanism | United States | Monetary policy | Interest rates | Economic models
 
English  
    Published:   July 3, 2013        
    ISBN/ISSN:   9781484343500/2227-8885   Format:   Paper
    Stock No:   WPIEA2013158   Pages:   38
    Price:   US$18.00
       
     
Please address any questions about this title to publications@imf.org.