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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.