Private Sector Debt, Financial Constraints, and the Effects of Monetary Policy: Evidence from the US

Abstract

We characterize the response of U.S. real GDP to monetary policy shocks conditional on the level of private sector debt and the degree to which financial constraints are binding. To incorporate state‐dependent effects of monetary policy, we use the local projection framework. We find that although the amount of private sector debt potentially weakens the monetary policy transmission mechanism, policy shocks exert substantially larger effects on output when high private debt coincides with binding financial constraints.

Euro Area Periphery Countries' Fiscal Policy and Monetary Policy Surprises*

“…The vector of control variables comprises the log difference of real output and first differences of the other variables. We estimate (7) with country fixed effects and a lag order of three.Following Klein (2017) and Breitenlechner and Scharler (2020), we calculate cumulated impulse responses for the estimation in first differences that are derived by regressing the difference of X as the dependent variable. The impulse responses are shown in Figure 7, which also displays the corresponding 90% error bands.…”

Euro Area Periphery Countries’ Fiscal Policy and Monetary Policy Surprises

“…We estimate (5) with fixed effects and a lag order of three. 21 Following Klein (2017) and Breitenlechner and Scharler (2020), we calculate cumulated impulse responses for the estimation in first differences that are derived by regressing the h th difference of X as the dependent variable. The impulse responses are shown in Figure 5, which also displays the corresponding 90% error bands.…”

Consumers’ Updating, Policy Shocks, and Public Debt: An Empirical Assessment of State Dependencies

“…We also consider the Wu and Xia (2016) shadow rate as an alternative monetary policy measure. We thank Max Breitenlechner for providing us data and codes to construct the monetary policy shocks used in Breitenlechner and Scharler (2020).…”