Monetary policy surprises, credit costs, and economic activity

Mark Gertler, Peter Karadi

    Research output: Contribution to journalArticlepeer-review


    We provide evidence on the transmission of monetary policy shocks in a setting with both economic and financial variables. We first show that shocks identified using high frequency surprises around policy announcements as external instruments produce responses in output and inflation that are typical in monetary VAR analysis. We also find, however, that the resulting " modest" movements in short rates lead to " large" movements in credit costs, which are due mainly to the reaction of both term premia and credit spreads. Finally, we show that forward guidance is important to the overall strength of policy transmission.

    Original languageEnglish (US)
    Pages (from-to)44-76
    Number of pages33
    JournalAmerican Economic Journal: Macroeconomics
    Issue number1
    StatePublished - 2015

    ASJC Scopus subject areas

    • General Economics, Econometrics and Finance


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