nep-mon New Economics Papers
on Monetary Economics
Issue of 2017‒09‒10
twenty-two papers chosen by
Bernd Hayo
Philipps-Universität Marburg

  1. United in diversity? The relationship between monetary policy and banking supervision in the banking union By Goldmann, Matthias
  2. Financial liberalization and long-run stability of money demand in Nigeria By Folarin, Oludele; Asongu, Simplice
  3. Karlsruhe refers the QE case to Luxembourg: Summer of love By Goldmann, Matthias
  4. Central bank information and the effects of monetary shocks By Hubert, Paul
  5. Dealing with time-inconsistency: Inflation targeting vs. exchange rate targeting By J. Scott Davis; Ippei Fujiwara; Jiao Wang
  6. How Have Banks Been Managing the Composition of High-Quality Liquid Assets? By Jane E. Ihrig; Edward Kim; Ashish Kumbhat; Cindy M. Vojtech; Gretchen C. Weinbach
  7. Global banking and the conduct of macroprudential policy in a monetary union By Jean-Christophe Poutineau; Gauthier Vermandel
  8. Views on the Economy and Monetary Policy Loretta J. Mester; The Economic Club of Pittsburgh, the World Affairs Council of Pittsburgh, CFA Society Pittsburgh, and the Pittsburgh Association for Financial Professionals, Pittsburgh, PA By Mester, Loretta J.
  9. Leaning Against the Wind: The Role of Different Assumptions About the Costs By Lars E.O. Svensson
  10. Monetary-Fiscal Interactions and the Euro Area's Malaise By Marek Jarociński; Bartosz Maćkowiak
  11. Informal one-sided target zone model and the Swiss franc By Yu-Fu Chen; Michael Funke; Richhild Moessner
  12. Measuring the Stance of Monetary Policy in a Time-Varying By Fernando J. Pérez Forero
  13. Leaning Against the Credit Cycle By Gelain, Paolo; Lansing, Kevin J.; Natvik, Gisele J.
  14. Asymmetric Unemployment Fluctuations and Monetary Policy Trade-offs By Antoine Lepetit
  15. Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors By Clark, Todd E.; McCracken, Michael W.; Mertens, Elmar
  16. Fixed on Flexible Rethinking Exchange Rate Regimes after the Great Recession By Corsetti, G.; Kuester, K; Müller, G. J.
  17. Official Sector Lending Strategies During the Euro Area Crisis By Corsetti, G.; Erce, A.; Uy, T.
  18. Fines for misconduct in the banking sector: What is the situation in the EU? By Götz, Martin R.; Tröger, Tobias H.
  19. Employment, Wages and Optimal Monetary Policy By Martin Bodenstein; Junzhu Zhao
  20. Machine learning at central banks By Chakraborty, Chiranjit; Joseph, Andreas
  21. Do Estimated Taylor Rules Suffer from Weak Identification? By Christian Murray; Juan Urquiza

  1. By: Goldmann, Matthias
    Abstract: This paper analyzes the relationship between monetary policy and financial stability in the Banking Union. There is no uniform global model regarding the relationship between monetary policy-making on the one hand, and prudential supervision on the other. Before the crisis, EU Member States followed different approaches, some of them uniting monetary and supervisory functions in one institution, others assigning them to different, neatly separated institutions. The financial crisis has underlined that monetary policy and prudential supervision deeply affect each other, especially in case of systemic events. Even in normal times, monetary and supervisory decisions might conflict with each other. After the crisis, some jurisdictions have moved towards a more holistic approach under which monetary policy takes supervisory considerations into account, while supervisory decisions pay due regard to monetary policy. The Banking Union puts prudential supervision in the hands of the European Central Bank (ECB), the institution responsible for monetary policy. Nevertheless, at its establishment there was the political understanding that the ECB should follow a policy of meticulous separation in the discharge of its different functions. This raises the question whether the ECB may pursue a holistic approach to monetary policy and supervisory decision-making, respectively. On the basis of a purposive reading of the monetary policy mandate and the SSM Regulation, the paper answers this question in the affirmative. Effective monetary policy (or supervision) requires financial stability (or smooth monetary policy transmission). Moreover, without a holistic approach, the SSM Regulation is more likely to provoke the adoption of mutually defeating decisions by the Governing Board. The reputation of the ECB would suffer considerably under such a situation - in a field where reputation is of paramount importance for effective policy. As any meticulous separation between monetary and supervisory functions turns out to be infeasible, the paper explores the reasons. Parting from Katharina Pistor's legal theory of finance, which puts the emphasis on exogenous factors to explain the (non)enforcement of legal rules, the paper suggests a legal instability theorem which focuses on endogenous reasons, such as law's indeterminacy, contextuality, and responsiveness to democratic deliberation. This raises the question whether the holistic approach would be democratically legitimate under the current framework of the ESCB. The idea of technocratic legitimacy that exempts the ECB from representative structures is effectively called into question by the legal instability theorem. This does not imply that the independence of the ECB should be given up, as there are no viable alternatives to protect monetary policy against the time inconsistency problem. Rather, any solution might benefit from recognizing the ECB in its mixed technocratic and political shape as a centerpiece of European integration and improving its transparency, responsiveness, and representativeness without removing its technocratic character.
    Keywords: Banking Union,Monetary Policy,Financial Stability,Single Supervisory Mechanism,Democratic Legitimacy
    Date: 2017
  2. By: Folarin, Oludele; Asongu, Simplice
    Abstract: A stable money demand function is essential when using monetary aggregate as a monetary policy. Thus, there is need to examine the stability of the money demand function in Nigeria after the deregulation of the financial sector. To achieve this, the study employed CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests after using autoregressive distributive lag bounds test to determine the existence of a long run relationship between monetary aggregate and its determinant. Results of the study show that a long-run relationship holds and that the demand for money is stable in Nigeria. In addition, the inflation rate is found to be a better proxy for an opportunity variable when compared to interest rate. The main implication of the study is that interest rate is ineffective as a monetary policy instrument in Nigeria.
    Keywords: Stable; demand for money; bounds test
    JEL: C22 E41
    Date: 2017–06
  3. By: Goldmann, Matthias
    Abstract: On 15 August 2017, the Bundesverfassungsgericht (BVerfG) referred the case against the European Central Bank's policy of Quantitative Easing (QE) to the European Court of Justice (ECJ). The author argues that this event differs in several aspects from the OMT case in 2015 - in content as well as in form. The BVerfG recognizes that it is a legitimate goal of the ECB's monetary policy to bring inflation up close to 2%, and that the instrument employed for QE is one of monetary policy. However, it doubts whether the sheer volume of QE would not distort the character of the program as one of monetary policy. The ECJ will now have to clarify the extent to which the ECJ's findings in its OMT judgment are relevant for QE as well as the standard of review applicable to monetary policy. The author raises the questions of whether the principle of democracy under German constitutional law can actually provide the standard by which the ECB is to be measured, and how tight judicial review could be exercised over the ECB without encroaching upon its autonomy in monetary policy matters - and thus upon the very essence of central bank independence.
    Keywords: ECB,Quantitative Easing,OMT,Monetary Policy,ECJ,BVerfG
    Date: 2017
  4. By: Hubert, Paul (Sciences Po)
    Abstract: Does the effect of monetary policy depend on the macroeconomic information released by the central bank? Because differences between central bank’s and private agents’ information sets affect private agents’ interpretation of policy decisions, this paper aims to investigate whether the publication of macroeconomic information by the central bank modifies private responses to monetary policy. We assess the non-linear effects of monetary shocks conditional on the Bank of England’s macroeconomic projections on UK private inflation expectations. We find that inflation projections modify the impact of monetary shocks. When contractionary monetary shocks are interacted with positive(negative) projections, the negative effect of policy on inflation expectations is amplified (reduced). This suggests that providing guidance about central bank future expected inflation helps private agents’ information processing, and therefore changes their response to policy decisions.
    Keywords: Monetary policy; information processing; signal extraction; market-based inflation expectations; central bank projections; real-time forecasts
    JEL: E52 E58
    Date: 2017–08–25
  5. By: J. Scott Davis; Ippei Fujiwara; Jiao Wang
    Abstract: Abandoning an objective function with multiple targets and adopting single mandate can be an effective way for a central bank to overcome the classic time-inconsistency problem. We show that the choice of a particular single mandate depends on an economy’s level of trade openness and the credibility of the central bank. We begin with reduced form empirical results which show that as central banks become less credible they are more likely to adopt a pegged exchange rate, and crucially, the tendency to peg depends on trade openness. Then in a model where the central bank displays “loose commitment” we show that as central bank credibility falls, they are more likely to adopt either an inflation target or a pegged exchange rate. A relatively closed economy would adopt an inflation target to overcome the time-inconsistency problem, but a highly open economy would prefer an exchange rate peg.
    Keywords: Time-inconsistency, Commitment, Inflation target, Exchange rate peg, Tie-one’s-hands
    JEL: E50 E30 F40
    Date: 2017–08
  6. By: Jane E. Ihrig; Edward Kim; Ashish Kumbhat; Cindy M. Vojtech; Gretchen C. Weinbach
    Abstract: Leading up to 2014, banks generally increased their holdings of excess reserves as they moved to become compliant with the liquidity coverage ratio (LCR) requirement. However, once the LCR requirement was met, some banks shifted the compositions of their high-quality liquid assets (HQLA), reducing shares of reserves and increasing shares of Treasury securities and certain mortgage-backed securities (MBS). This raises the question: For a given stock of HQLA, what is its optimal composition? We use standard optimal portfolio theory to benchmark the ideal composition of a given stock of HQLA and find that a range of "optimal" HQLA portfolios is plausible depending on banks' tolerance for risk. A bank that is highly risk averse (inclined) prefers a relatively large share of reserves (MBS). Of course, the LCR is not the only constraint on banks' operations. We discuss how other factors interact with the LCR, and then examine the data for individual BHCs to show that they are currently employing a range of approaches to managing the compositions of their HQLA. In addition, we find that the pattern of dispersion in the daily variance of banks' HQLA shares supports the view that such factors are important drivers of banks' management of HQLA. Finally, we discuss possible policy implications of our results regarding the Federal Reserve's longer-run implementation of monetary policy.
    Keywords: CAPM ; HQLA ; LCR ; Bank balance sheets ; Liquid assets ; Liquidity management ; Reserve balances
    JEL: E51 E58 G21 G28
    Date: 2017–08–30
  7. By: Jean-Christophe Poutineau (CREM - Centre de Recherche en Economie et Management - UNICAEN - Université Caen Normandie - UR1 - Université de Rennes 1 - CNRS - Centre National de la Recherche Scientifique); Gauthier Vermandel (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)
    Abstract: This paper questions the role of cross-border lending in the definition of national macroprudential policies in the European Monetary Union. We build and estimate a two-country DSGE model with corporate and interbank cross-border loans, Core-Periphery diverging financial cycles and a national implementation of coordinated macroprudential measures based on Countercyclical Capital Buffers. We get three main results. First, targeting a national credit-to-GDP ratio should be favored to federal averages as this rule induces better stabilizing performances in front of important divergences in credit cycles between core and peripheral countries. Second, policies reacting to the evolution of national credit supply should be favored as the transmission channel of macroprudential policy directly impacts the marginal cost of loan production and, by so, financial intermediaries. Third, the interest of lifting up macroprudential policymaking to the supra-national level remains questionable for admissible value of international lending between Eurozone countries. Indeed, national capital buffers reacting to the union-wide loan-to-GDP ratio only lead to the same stabilization results than the one obtained under the national reaction if cross-border lending reaches 45%. However, even if cross-border linkages are high enough to justify the implementation of a federal adjusted solution, the reaction to national lending conditions remains remarkably optimal.
    Keywords: Macroprudential policy, Global banking, International business cycles, Euro area
    Date: 2017
  8. By: Mester, Loretta J. (Federal Reserve Bank of Cleveland)
    Abstract: My talk today also lets me explain my views on monetary policy. Congress has given the Fed its monetary policy goals of maximum employment and price stability. At the same time, Congress has also wisely granted the Fed independence in setting monetary policy in pursuit of those goals, meaning that policy decisions are insulated from short-run political considerations. But accountability must go hand in hand with that independence. I call this “accountable independence.” In order for the public and Congress to have the information they need to hold the Fed accountable for monetary policy decisions, it is important for Fed policymakers to regularly communicate their views.
    Keywords: Monetary Policy; Economy; Pittsburgh PA;
    Date: 2017–09–07
  9. By: Lars E.O. Svensson
    Abstract: “Leaning against the wind” (LAW), that is, tighter monetary policy for financial-stability purposes, has costs in terms of a weaker economy with higher unemployment and lower inflation and possible benefits from a lower probability or magnitude of a (financial) crisis. A first obvious cost is a weaker economy if no crisis occurs. A second cost—less obvious, but higher—is a weaker economy if a crisis occurs. Taking the second cost into account, Svensson (2017) shows that for representative empirical benchmark estimates and reasonable assumptions the costs of LAW exceed the benefits by a substantial margin. Previous literature has disregarded the second cost, by assuming that the crisis loss level is independent of LAW. Some recent literature has effectively disregarded the second cost, making it to be of second order by assuming that the cost of a crisis (the crisis loss level less the non-crisis loss level) is independent of LAW. In these cases where the second cost is disregarded, for representative estimates a small but economically insignificant amount of LAW is optimal.
    JEL: E52 E58 G01
    Date: 2017–08
  10. By: Marek Jarociński; Bartosz Maćkowiak
    Abstract: When monetary and fiscal policy are conducted as in the euro area, output, inflation, and government bond default premia are indeterminate according to a standard general equilibrium model with sticky prices extended to include defaultable public debt. With sunspots, the model mimics the recent euro area data. We specify an alternative configuration of monetary and fiscal policy, with a non-defaultable eurobond. If this policy arrangement had been in place since the onset of the Great Recession, output could have been much higher than in the data with inflation in line with the ECB's objective.
    JEL: E31 E32 E63
    Date: 2017–08
  11. By: Yu-Fu Chen; Michael Funke; Richhild Moessner
    Abstract: This paper develops a new theoretical model with an asymmetric informal one-sided exchange rate target zone, with an application to the Swiss franc following the removal of the minimum exchange rate of CHF 1.20 per euro in January 2015. We extend and generalize the standard target zone model of Krugman (1991) by introducing perceived uncertainty about the lower edge of the band. We find that informal soft edge target zone bands lead to weaker honeymoon effects, wider target zone ranges and higher exchange rate volatility than formal target zone bands. These results suggest that it would be beneficial for exchange rate policy intentions to be stated clearly in order to anchor exchange rate expectations and reduce exchange rate volatility. We also study how exchange rate dynamics can be characterized in models in which financial markets are aware of occasional changes in the policy regime. We show that expected changes in the central bank's exchange rate policy may lead to exchange rate oscillations, providing an additional source of exchange rate volatility, and to capture this it is important to take into account the possibility of regime changes in exchange rate policy.
    Keywords: Swiss franc, target zone model, exchange rate interventions
    JEL: F31 E42 C61
    Date: 2017–08
  12. By: Fernando J. Pérez Forero (Central Reserve Bank of Peru)
    Abstract: The stance of monetary policy is a general interest for academics, policy makers and the private sector. The latter is not necessarily observable, since the Fed have used different monetary instruments at different points in time. This paper provides a measure of this stance for the last forty five years, which is a weighted average of a pool of instruments. We extend Bernanke and Mihov (1998)'s Interbank Market model by allowing structural parameters and shock variances to change over time. In particular, we follow the recent work of Canova and Pérez Forero (2015) for estimating non-recursive TVC-VARs with Bayesian Methods. The estimated stance measure describes how tight/loose was monetary policy over time and takes into account the uncertainty related with posterior estimates of time varying parameters. Finally, we present how has monetary transmission mechanism changed over time, focusing our attention in the period after the Great Recession.
    Keywords: SVARs, Interbank Market, Operating Procedures, Monetary Policy Stance, Time-varying parameters, Bayesian Methods, Multi-move Metropolis within Gibbs Sampling
    JEL: C11 E51 E52 E58
    Date: 2017–08
  13. By: Gelain, Paolo (European Central Bank); Lansing, Kevin J. (Federal Reserve Bank of San Francisco); Natvik, Gisele J. (BI Norwegian Business School)
    Abstract: How should a central bank act to stabilize the debt-to-GDP ratio? We show how the persistent nature of household debt shapes the answer to this question. In environments where households repay mortgages gradually, surprise interest hikes only weakly influence household debt, and tend to increase debt-to-GDP in the short run while reducing it in the medium run. Interest rate rules with a positive weight on debt-to-GDP cause indeterminacy. Compared to inflation targeting, debt-to-GDP stabilization calls for a more expansionary policy when debt-to-GDP is high, so as to deflate the debt burden through inflation and output growth.
    JEL: E32 E44 E52
    Date: 2017–08–30
  14. By: Antoine Lepetit (Banque de France - Banque de France - Banque de France)
    Abstract: I show that a trade-off between inflation volatility and average unemployment arises in a New Keynesian model with search and matching frictions in the labor market. In this environment, unemployment rises more and faster in a recession than it decreases in an expansion. A strong focus on inflation stabilization in response to technology shocks comes at the cost of larger labor market volatility. Because unemployment fluctuations are asymmetric, it also results in higher average unemployment. The optimal policy responds strongly to both inflation and employment and stabilizes labor market fluctuations. Adopting this policy rather than a policy of price stability yields sizeable welfare gains. These gains are mostly accounted for by the increase in average employment relative to the price stability case.
    Keywords: Optimal monetary policy,Unemployment fluctuations,Matching frictions
    Date: 2016–04
  15. By: Clark, Todd E. (Federal Reserve Bank of Cleveland); McCracken, Michael W. (Federal Reserve Bank of St. Louis); Mertens, Elmar (Bank for International Settlements)
    Abstract: We develop uncertainty measures for point forecasts from surveys such as the Survey of Professional Forecasters, Blue Chip, or the Federal Open Market Committee's Summary of Economic Projections. At a given point of time, these surveys provide forecasts for macroeconomic variables at multiple horizons. To track time-varying uncertainty in the associated forecast errors, we derive a multiple-horizon specification of stochastic volatility. Compared to constant-variance approaches, our stochastic-volatility model improves the accuracy of uncertainty measures for survey forecasts.
    Keywords: Stochastic volatility; survey forecasts; prediction
    JEL: C32 C53 E47
    Date: 2017–08–28
  16. By: Corsetti, G.; Kuester, K; Müller, G. J.
    Abstract: The zero lower bound problem during the Great Recession has exposed the limits of monetary autonomy, prompting a re-evaluation of the relative benefits of currency pegs and monetary unions (see e.g. Cook and Devereux, 2016). We revisit this issue from the perspective of a small open economy. While a peg can be beneficial when the recession originates domestically, we show that a float dominates in the face of deflationary demand shocks abroad. When the rest of the world is in a liquidity trap, the domestic currency depreciates in nominal and real terms even in the absence of domestic monetary stimulus (if domestic rates are also at the zero lower bound) - enhancing the country's competitiveness and insulating to some extent the domestic economy from foreign deflationary pressure.
    Keywords: External shock, Great Recession, Exchange rate, Zero lower bound, Exchange rate peg, Currency union, Fiscal Multiplier, Benign coincidence
    JEL: F41 F42 E31
    Date: 2017–08–17
  17. By: Corsetti, G.; Erce, A.; Uy, T.
    Abstract: In response to the euro area crisis, European policymakers took a gradual, incremental approach to official lending, at first relying on the approach followed by the International Monetary Fund, then developing their own crisis resolution framework. We review this development, marked by a substantial divergence in the terms of official loans offered to the crisis countries by the IMF and the euro area official lenders. Based on a unique dataset, we use event analysis to assess the impact of changing maturity and spreads of official loans on bond yields, liquidity and market access. In light of the euro area experience, we discuss arguments for rebalancing Debt Sustainability Analysis and programme design towards cash-flow management. While the official assistance granted to crisis countries in the euro area may not be replicable elsewhere, key lessons from it that could foster a reconsideration of the modalities by which official lending institutions handle crises.
    Keywords: Crisis management, debt sustainability, loans maturity, market access, private sector involvement, seniority, yield curve.
    JEL: F33 F34 H12
    Date: 2017–08–17
  18. By: Götz, Martin R.; Tröger, Tobias H.
    Abstract: Bank regulators have the discretion to discipline banks by executing enforcement actions to ensure that banks correct deficiencies regarding safe and sound banking principles. We highlight the trade-offs regarding the execution of enforcement actions for financial stability. Following this we provide an overview of the differences in the legal framework governing supervisors' execution of enforcement actions in the Banking Union and the United States. After discussing work on the effect of enforcement action on bank behaviour and the real economy, we present data on the evolution of enforcement actions and monetary penalties by U.S. regulators. We conclude by noting the importance of supervisors to levy efficient monetary penalties and stressing that a division of competences among different regulators should not lead to a loss of efficiency regarding the execution of enforcement actions.
    Keywords: financial stability,banking supervision,banking regulation,bank sanctions,monetary penalties
    Date: 2017
  19. By: Martin Bodenstein; Junzhu Zhao
    Abstract: We study optimal monetary policy when the empirical evidence leaves the policymaker uncertain whether the true data-generating process is given by a model with sticky wages or a model with search and matching frictions in the labor market. Unless the policymaker is almost certain about the search and matching model being the correct data-generating process, the policymaker chooses to stabilize wage inflation at the expense of price inflation, a policy resembling the policy that is optimal in the sticky wage model, regardless of the true model. This finding reflects the greater sensitivity of welfare losses to deviations from the model-specific optimal policy in the sticky wage model. Thus, uncertainty about important aspects of the structure of the economy does not necessarily translate into uncertainty about the features of good monetary policy.
    Keywords: Model uncertainty ; Optimal monetary policy ; Optimal targeting rules ; Search and matching ; Sticky wages
    JEL: E52
    Date: 2017–08–29
  20. By: Chakraborty, Chiranjit (Bank of England); Joseph, Andreas (Bank of England)
    Abstract: We introduce machine learning in the context of central banking and policy analyses. Our aim is to give an overview broad enough to allow the reader to place machine learning within the wider range of statistical modelling and computational analyses, and provide an idea of its scope and limitations. We review the underlying technical sources and the nascent literature applying machine learning to economic and policy problems. We present popular modelling approaches, such as artificial neural networks, tree-based models, support vector machines, recommender systems and different clustering techniques. Important concepts like the bias-variance trade-off, optimal model complexity, regularisation and cross-validation are discussed to enrich the econometrics toolbox in their own right. We present three case studies relevant to central bank policy, financial regulation and economic modelling more widely. First, we model the detection of alerts on the balance sheets of financial institutions in the context of banking supervision. Second, we perform a projection exercise for UK CPI inflation on a medium-term horizon of two years. Here, we introduce a simple training-testing framework for time series analyses. Third, we investigate the funding patterns of technology start-ups with the aim to detect potentially disruptive innovators in financial technology. Machine learning models generally outperform traditional modelling approaches in prediction tasks, while open research questions remain with regard to their causal inference properties.
    Keywords: Machine learning; artificial intelligence; big data; econometrics; forecasting; inflation; financial markets; banking supervision; financial technology
    JEL: A12 A33 C14 C38 C44 C45 C51 C52 C53 C54 C61 C63 C87 E37 E58 G17 Y20
    Date: 2017–09–04
  21. By: Christian Murray (University of Houston); Juan Urquiza (Pontificia Universidad Católica de Chile)
    Abstract: Over the last decade, applied researchers have estimated forward looking Taylor rules with interest rate smoothing via Nonlinear Least Squares. A common empirical finding for post-Volcker samples, based on asymptotic theory, is that the Federal Reserve adheres to the Taylor Principle. We explore the possibility of weak identification and spurious inference in estimated Taylor rule regressions with interest rate smoothing. We argue that the presence of smoothing subjects the parameters of interest to the Zero Information Limit Condition analyzed by Nelson and Startz (2007, Journal of Econometrics). We demonstrate that confidence intervals based on standard methods such as the delta method can have severe coverage problems when interest rate smoothing is persistent. We then demonstrate that alternative methodologies such as Fieller (1940, 1954), Krinsky and Robb (1986), and the Anderson-Rubin (1949) test have better finite sample coverage. We reconsider the results of four recent empirical studies and show that the evidence supporting the Taylor Principle can be reversed over half of the time.
    Keywords: Spurious Inference; Zero-Information-Limit-Condition; Interest Rate Smoothing; Nonlinear Least Squares.
    JEL: C12 C22 E52
    Date: 2017–09–03
  22. By: Charaf Eddine Moussir (Université Mohammed 5 Agdal); Abdellatif Chatri (Université Mohammed 5 Agdal)
    Abstract: The purpose of this paper is to shed more light on the existence of significant differences in the reactions of Moroccan sectors to monetary policy shocks. The results of the analysis indicate that at the aggregate level a monetary policy tightening leads to a decrease of the overall GDP and price level. At the disaggregated level, the extraction industry, manufacturing, construction, hotels & restaurants, the financial and insurance activities are among the more sensitive sectors to monetary policy shocks. On the other hand monetary policy innovations do not appear to have an adverse impact on agriculture and fishing sectors
    Keywords: Morocco.,Monetary policy, sectoral output, VAR model, Impulse response functions
    Date: 2017–01–06

This nep-mon issue is ©2017 by Bernd Hayo. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.