We analyze the interaction between credit and asset prices in the transmission of shocks to the real economy. We estimate a Markov switching VAR for the euro area and the US, including additionally GDP, CPI and a short-term interest rate. We find evidence for two distinct states in both regions....

This paper provides a brief survey of the role of financial frictions in the monetary transmission mechanism. After noting some of the key stylised facts that any model of the transmission mechanisms must be consistent with, we discuss both the classical interest rate channel and the credit and...

Drawing on recent Eurosystem research that uses a range of econometric techniques and a number of new data sets, we propose a comprehensive description of how monetary policy affects the euro area economy. We focus mainly on three questions: (1) what are the stylised facts concerning the...

This paper uses a time-varying Factor Augmented VAR to investigate the evolving transmission of monetary policy and demand shocks in the UK. Simultaneous estimation of time-varying impulse responses of a large set of macroeconomic variables and disaggregated prices suggest that the response of...

Few areas of monetary economics have been studied as extensively as the transmission mechanism. The literature on this topic has evolved substantially over the years, following the waxing and waning of conceptual frameworks and the changing characteristics of the financial system. In this paper,...

This paper investigates the relationship between corporate bond market and real economic activity. A linear model is estimated by using the Generalized Method of Moments (GMM) indicating that the yield spread of corporate bonds (AA-) relative to government bonds - a proxy of liquidity and...

A key problem facing monetary policy makers is determining whether serious financial instability is present. Periods of financial instability are linked with low investors’ risk appetite (or in other words high risk aversion). Two different measures of investors’ risk aversion are used: (a)...

This paper examines the effects of private financial (non-FDI) capital inflows in Thailand in the pre-crisis period (1980:I–96:IV). Private capital inflows are found to be associated with higher asset prices, lower lending rates, surges in bank lending and domestic spending driven by higher...