Empirical Economics

, Volume 54, Issue 3, pp 959–987 | Cite as

The changing transmission mechanism of US monetary policy

  • Norhana Endut
  • James Morley
  • Pao-Lin Tien


We examine the relative importance of the interest rate, exchange rate, and bank-lending channels for the transmission mechanism of monetary policy in the United States over the past fifty years. Our analysis is based on a structural vector autoregressive model that includes bank loans and uses sign restrictions to identify monetary policy shocks. Given these identified policy shocks, we quantify the relative importance of different transmission channels via counterfactual analysis. Our results suggest a nontrivial role for the bank-lending channel at the aggregate level, but its importance has been greatly diminished since the early 1980s. Despite the timing, we find no support for a link between this change in the transmission mechanism and the concurrent reduction in output volatility associated with the Great Moderation. There is, however, some evidence of a link to the reduction in inflation volatility occurring at the same time.


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Copyright information

© Springer-Verlag Berlin Heidelberg (outside the USA) 2017

Authors and Affiliations

  1. 1.Bank Negara MalaysiaKuala LumpurMalaysia
  2. 2.University of New South WalesSydneyAustralia
  3. 3.Bureau of Economic AnalysisWashingtonUSA

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