Monetary Policy in a Downturn: Are Financial Crises Special? | Zendy

Bech Morten L. | Zendy; Gambacorta Leonardo | Zendy; Kharroubi Enisse | Zendy

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Monetary Policy in a Downturn: Are Financial Crises Special?

Author(s) -

Bech Morten L.,

Gambacorta Leonardo,

Kharroubi Enisse

Publication year - 2014

Publication title -

international finance

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.458

H-Index - 39

eISSN - 1468-2362

pISSN - 1367-0271

DOI - 10.1111/infi.12040

Subject(s) - deleveraging , economics , monetary policy , recession , financial crisis , monetary economics , sample (material) , monetary transmission mechanism , credit channel , macroeconomics , inflation targeting , chemistry , chromatography

This paper analyses the effectiveness of monetary policy during downturns associated with financial crises. Based on a sample of 24 developed countries, our empirical analysis suggests that monetary policy is less effective following a financial crisis as the monetary transmission mechanism is partially impaired. In particular, our results suggest that the benefits of accommodative monetary policy during a downturn are elusive when the downturn is associated with a financial crisis. In addition, we find that private sector deleveraging during a downturn helps to induce a stronger recovery.

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