Revisiting the Monetary Transmission Mechanism Through an Industry-Level Differential Approach

By Sangyup Choi, Tim Willems, Seung Yong Yoo

January 28, 2022

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Sangyup Choi, Tim Willems, and Seung Yong Yoo. Revisiting the Monetary Transmission Mechanism Through an Industry-Level Differential Approach, (USA: International Monetary Fund, 2022) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We combine industry-level data on output and prices with monetary policy shock estimates for 105 countries to analyze how the effects of monetary policy vary with industry characteristics. Next to being interesting in their own right, our findings are informative on the importance of various transmission mechanisms (as they are thought to vary systematically with the included characteristics). Results suggest that monetary contractions reduce output by more in industries featuring assets that are more difficult to collateralize, consistent with the credit channel, followed by industries producing durables, as predicted by the interest rate channel. The credit channel is stronger during bad times as well as in countries with lower levels of financial development, in line with financial accelerator logic. We do not find support for the cost channel of monetary policy, nor for a channel running via exports. Our database (containing estimated monetary policy shocks for over 170 countries) may be of independent interest to researchers.

Subject: Credit, Exchange rates, Financial crises, Financial markets, Financial sector development, Financial services, Foreign exchange, International trade, Monetary policy, Monetary tightening, Money, Public financial management (PFM)

Keywords: Asymmetry in transmissions, Balance sheet channel, Central bank policy rate, Channel of monetary policy, Credit, Credit channel, Differential approach, Effects of monetary policy, Exchange rates, Export fluctuations, Financial frictions, Financial sector development, Financial statements, Global, IMF working papers, Industry growth, Monetary policy shock, Monetary policy stance, Monetary policy transmission, Monetary tightening, Shock series, X MPS

Publication Details

Pages:

67
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/017
Stock No:

WPIEA2022017
ISBN:

9798400201028
ISSN:

1018-5941

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