Revisiting the Monetary Transmission Mechanism Through an Industry-Level Differential Approach

IMF Working Papers, January 28, 2022

Source details

Canonical URL: Revisiting the Monetary Transmission Mechanism Through an Industry-Level Differential Approach

Authors: Sangyup Choi, Tim Willems, Seung Yong Yoo
Date: January 28, 2022
Sample and coverage:
- Industry-level data on output and prices combined with monetary policy shock estimates for 105 countries.
- Database contains estimated monetary policy shocks for over 170 countries.
Publication metadata:
- IMF Working Papers, Working Paper No. 2022/017
- Issue: 017
- Volume: 2022
- Pages: 67
- DOI: https://doi.org/10.5089/9798400201028.001
- Stock No: WPIEA2022017
- ISBN: 9798400201028
- ISSN: 1018-5941

Monetary contractions reduce output more in industries featuring assets that are more difficult to collateralize, consistent with the credit channel.
The next-largest negative effect from monetary contractions is observed in industries producing durables, as predicted by the interest rate channel.
The credit channel is stronger:
- during bad times;
- in countries with lower levels of financial development.
- (These results are consistent with financial accelerator logic.)
No empirical support is found for:
- the cost channel of monetary policy;
- a transmission channel operating via exports.
The authors note that their database (containing estimated monetary policy shocks for over 170 countries) may be of independent interest to researchers.

Credit channel:
- Stronger impact on industries with assets that are harder to collateralize.
- Amplified during downturns and in less financially developed countries.
Interest rate channel:
- Evident via stronger effects on durables-producing industries.
Cost channel:
- No support found in the analysis.
Export channel:
- No support found in the analysis.

Combines industry-level output and price data with cross-country monetary policy shock estimates to assess heterogeneity in transmission.
Findings are informative about the relative importance of different transmission mechanisms because industry characteristics are hypothesized to systematically correlate with how each mechanism operates.
The provided shock database (over 170 countries) is highlighted as a resource for further research.

Subject: Credit, Exchange rates, Financial crises, Financial markets, Financial sector development, Financial services, Foreign exchange, International trade, Monetary policy, Monetary tightening, Money, Public financial management (PFM)
Keywords: Asymmetry in transmissions, balance sheet channel, Central bank policy rate, channel of monetary policy, Credit, credit channel, differential approach, effects of monetary policy, Exchange rates, Export fluctuations, Financial frictions, Financial sector development, Financial statements, Global, IMF working papers, Industry growth, monetary policy shock, monetary policy stance, Monetary policy transmission, Monetary tightening, shock series, x MPS

IMF Working Paper by Sangyup Choi, Tim Willems, and Seung Yong Yoo; January 28, 2022; DOI: https://doi.org/10.5089/9798400201028.001