Nov 6, 2017 - alternative set of sign restrictions are very similar to our baseline. Figures S.4-S.5 report the results
Online Supplement to
“The International Credit Channel of US Monetary Policy and Financial Shocks” by A. Cesa-Bianchi and A. Sokol November 6, 2017
S1
S1
Impulse Responses: Robustness
In this section we provide a battery of checks suggesting that our estimation results are robust in several respects. Figures S.1-S.2 plot the impulse responses that we obtain when we impose additional sign restrictions in order to identify, in additional to a monetary policy and a financial shock, an aggregate demand and an aggregate supply shock.responses of the US and UK economy to a monetary policy shock; and Figure S.2 reports the responses of the US and UK economy to a financial shock. These results are very similar to our baseline. Figure S.3 reports the impulse responses that we obtain when we identify the financial shock without restricting inflation to fall. In this way we try to account for the fact that financial shocks might behave like supply shocks. The results with this alternative set of sign restrictions are very similar to our baseline. Figures S.4-S.5 report the results estimated on a shorter sample for the UK (starting in 1993:M1), when the UK adopted an inflation target as its nominal anchor following its exit from the Exchange Rate Mechanism. Note that we do not need here to reduce the sample for the US model since (as noted on the main text) the US and the UK models can be estimates separately. Given the shorter sample, we also reduce the number of lags in the UK model. We use 4 lags for the UK variables and 1 lag for the US variables, according to the Akaike criterion. Figure S.4 reports the responses of the US and UK economy to a monetary policy shock; and Figure S.5 reports the responses of the US and UK economy to a financial shock. Again, the results we obtain are in line with our baseline. Figures S.6-S.7 report the impulse responses computed over a shorter sample for both the UK and the US that excludes the global financial crisis, i.e. from 1979:M3 to 2007:M12. Figure S.6 reports the responses of the US and UK economy to a monetary policy shock; and Figure S.7 reports the responses of the US and UK economy to a financial shock. Not surprisingly, the period of the global financial crisis is important for the identification of financial shocks. However, the impulse responses in Figures S.6S.7 show that our results (despite begin less precisely estimated) remain qualitatively in line with our baseline estimates. Finally, Figures S.8-S.9 report the results that we obtain using Unemployment as a measure of economic activity in the United Kingdom (instead of industrial production, as in our baseline). Figure S.8 reports the responses of the US and UK economy to a monetary policy shock; and Figure S.9 reports the responses of the US and UK economy to a financial shock. Again, the impulse responses are very similar to our baseline, with unemployment being little affected by the monetary policy shock; and slightly more affected by the US financial shock (at lest at the 68% confidence interval), despite a sharp fall in the UK policy rate.
S2
Figure S.1 US Monetary Policy Shock – Identifying Other Shocks (A) United States 1yr Rate
CPI
Industrial Production
0.3 0.1 0
0.1
0
Percent
Percent
Percentage Points
0.2
-0.05
0
-0.1
-0.1 -0.2 -0.3 -0.4 -0.5
-0.1 -0.15 10
20
-0.6
30
10
20
Months
30
10
Months
Excess Bond Premium
20
30
Months
Bond Yield 0.25 0.2
Percentage Points
Basis Points
10
5
0.15 0.1 0.05 0
0
-0.05 10
20
30
10
20 Months
Months Mean
68% C.I.
30 90% C. I.
(B) United Kingdom 1yr rate
CPI
Exch. Rate ($ per £)
0.1 0.2
0.05 0.05
0
-0.05
Percent
-0.2
Percent
Percent
0 0
-0.05 -0.1
-0.1
-0.15
-0.15
-0.2
-0.4 -0.6 -0.8 -1 -1.2
10
20
30
10
Months
20
30
Months
Corporate Spread
10
20
30
Months
Industrial Production 0.1
10
Percent
Basis Points
0
5
-0.1
-0.2
0 -0.3
-0.4 10
20
30
10
Months Mean
20 Months 68% C.I.
30 90% C. I.
Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.
S3
Figure S.2 US Financial Shock – Identifying Other Shocks (A) United States 1yr Rate
CPI
0
Industrial Production 0.1
-0.05
0
0 -0.05
Percent
-0.1
Percent
Percentage Points
0.05
-0.1
-0.15
-0.1
-0.2 -0.3 -0.4 -0.5
-0.15
-0.2 -0.6
-0.2 10
20
30
10
Months
30
10
Months
Excess Bond Premium
20
30
Months
Bond Yield
15
0.2 0.15
Percentage Points
Basis Points
20
10
5
0.1 0.05 0
0
-0.05 -5 10
20
30
10
Months Mean
20 Months 68% C.I.
30 90% C. I.
(B) United Kingdom 1yr rate
0.05
CPI
0
Exch. Rate ($ per £)
-0.05
0
0 -0.1
-0.1
Percent
Percent
Percent
-0.05 -0.15 -0.2
-0.15
-0.25
-0.2
-0.3
-0.5
-1
10
20
30
10
Months
20
30
Months
Corporate Spread
10
20
30
Months
Industrial Production 0.1
10
Percent
Basis Points
0 5 -0.1
-0.2
0 -0.3 -5 10
20
30
10
Months Mean
20 Months 68% C.I.
30 90% C. I.
Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.
S4
Figure S.3 US Financial Shock – Unrestricted Inflation (A) United States 1yr Rate
CPI
Industrial Production
0.15
0.05
0
0.05
-0.05 -0.1
-0.2
Percent
Percent
Percentage Points
0.1 0
0 -0.05 -0.1
-0.15
-0.4
-0.6
-0.15
-0.2
-0.8
-0.2 10
20
30
10
Months
20
30
10
Months
Excess Bond Premium
20
30
Months
Bond Yield 0.2
15
Percentage Points
Basis Points
0.15 10
5
0
0.1 0.05 0 -0.05
10
20
30
10
Months Mean
20 Months 68% C.I.
30 90% C. I.
(B) United Kingdom 1yr rate
CPI
Exch. Rate ($ per £)
0.1
0
0
-0.1 -0.15
0
Percent
Percent
Percent
-0.05
-0.1
-0.5
-1 -0.2 -0.2 -0.25
-1.5 10
20
30
10
Months
20
30
Months
Corporate Spread
10
20
30
Months
Industrial Production
12 0 10 -0.1
6
Percent
Basis Points
8
4
-0.2 -0.3
2 0
-0.4 -2 10
20
30
10
Months Mean
20 Months 68% C.I.
30
90% C. I.
Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.
S5
Figure S.4 US Monetary Policy Shock – UK Sample Post 1993 (A) United States 1yr Rate
CPI
Industrial Production
0.3 0.1 0
0.1
0
Percent
Percent
Percentage Points
0.2
-0.05
0
-0.1
-0.1 -0.2 -0.3 -0.4 -0.5
-0.1 -0.15 10
20
-0.6
30
10
20
Months
30
10
Months
Excess Bond Premium
20
30
Months
Bond Yield 0.25 0.2
Percentage Points
Basis Points
10
5
0.15 0.1 0.05 0
0
-0.05 10
20
30
10
20 Months
Months Mean
68% C.I.
30 90% C. I.
(B) United Kingdom 1yr rate
CPI
Exch. Rate ($ per £) 0.6
0.05
0.4
0.05
0
0.2
Percent
Percent
Percent
0
-0.05
-0.4
-0.1
-0.05
0 -0.2
-0.6 -0.15 -0.8
-0.1 10
20
30
10
Months
20
30
Months
Corporate Spread
10
20
30
Months
Industrial Production 0.2
4
Percent
Basis Points
0.1 2
0
-2
0
-0.1
-0.2
-4
-0.3 10
20
30
10
Months Mean
20 Months 68% C.I.
30 90% C. I.
Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.
S6
Figure S.5 US Financial Shock – UK Sample Post 1993 (A) United States 1yr Rate
CPI
0
Industrial Production 0.1
0.05
0 -0.1
-0.05
-0.1
-0.1
-0.15
-0.15
-0.2
Percent
Percent
Percentage Points
-0.05 0
-0.2 -0.3 -0.4 -0.5 -0.6
-0.2 10
20
30
10
Months
20
30
10
Months
Excess Bond Premium
20
30
Months
Bond Yield 0.2 0.15
Percentage Points
Basis Points
15
10
5
0.1 0.05 0
0 -0.05 -5 10
20
30
10
Months Mean
20 Months 68% C.I.
30 90% C. I.
(B) United Kingdom 1yr rate
0.05
CPI
Exch. Rate ($ per £)
0 0
0.5
-0.05
-0.1
Percent
Percent
Percent
-0.05 -0.1 -0.15
0
-0.5 -0.2 -0.15 -1
-0.25 10
20
30
10
Months
20
30
Months
Corporate Spread
10
20
30
Months
Industrial Production
10
0.3
Percent
Basis Points
0.2 5
0
0.1 0 -0.1
-5
-0.2
10
20
30
10
Months Mean
20 Months 68% C.I.
30 90% C. I.
Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.
S7
Figure S.6 US Monetary Policy Shock – Excluding the Global Financial Crisis (A) United States 1yr Rate
CPI
0.3
Industrial Production
0.08
0.04
0
-0.2
Percent
0.1
Percent
Percentage Points
0 0.06
0.2
0.02 0 -0.02
-0.4 -0.6
-0.1 -0.04 -0.2
-0.06 10
20
-0.8
30
10
20
Months
30
10
Months
Excess Bond Premium
20
30
Months
Bond Yield 0.2 0.15
Percentage Points
Basis Points
10
5
0.1 0.05 0
0
-0.05 10
20
30
10
20 Months
Months Mean
68% C.I.
30 90% C. I.
(B) United Kingdom 1yr rate
CPI
Exch. Rate ($ per £)
0.1 1 0.05 0.05 0.5
0
-0.05
Percent
Percent
Percent
0 -0.05 -0.1
-0.1
-0.5
-0.15
-0.15
-1 10
20
30
10
Months
20
30
Months
Corporate Spread
0.3
10 8
0.2
6
0.1
Percent
Basis Points
0
4 2
10
20
30
Months
Industrial Production
0 -0.1
0 -0.2
-2
-0.3
-4 10
20
30
10
Months Mean
20 Months 68% C.I.
30 90% C. I.
Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.
S8
Figure S.7 US Financial Shock – Excluding the Global Financial Crisis (A) United States 1yr Rate
CPI 0
0
-0.2
-0.05 -0.04
Percent
-0.1
-0.06 -0.08
-0.15
Industrial Production
-0.1
-0.02
Percent
Percentage Points
0
-0.3 -0.4 -0.5
-0.1
-0.2
-0.6 -0.12 -0.7
-0.25 10
20
30
10
Months
20
30
10
Months
Excess Bond Premium
20
30
Months
Bond Yield 0.15
Percentage Points
Basis Points
10
5
0
0.1
0.05
0
-0.05 10
20
30
10
Months Mean
20 Months 68% C.I.
30 90% C. I.
(B) United Kingdom 1yr rate
CPI
Exch. Rate ($ per £)
0.05 0
1
0 -0.05 0.5
-0.1
-0.1
Percent
Percent
Percent
-0.05
-0.15
-0.15
-0.2
-0.2
-0.25
0
-0.5
-1
-0.3
-0.25 10
20
30
10
20
30
Months
Months
Corporate Spread
Industrial Production
10
20
30
Months
0.15
8
0.1 0.05 4
Percent
Basis Points
6
2
0 -0.05 -0.1
0
-0.15 -2
-0.2 10
20
30
10
Months Mean
20 Months 68% C.I.
30 90% C. I.
Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.
S9
Figure S.8 US Monetary Policy Shock – Specification with Unemployment (A) United States 1yr Rate
CPI
Industrial Production
0.3 0.1 0
0.1
0
0
Percent
Percent
Percentage Points
0.2
-0.05
-0.1
-0.1 -0.2 -0.3 -0.4 -0.5
-0.1 -0.15 10
20
-0.6
30
10
20
Months
30
10
Months
Excess Bond Premium
20
30
Months
Bond Yield 0.25 0.2
Percentage Points
Basis Points
10
5
0.15 0.1 0.05 0
0
-0.05 10
20
30
10
Months Mean
20 Months 68% C.I.
30 90% C. I.
(B) United Kingdom 1yr rate
CPI
0.1
Exch. Rate ($ per £)
0.05 0 0
0.05
-0.2
0
-0.05
Percent
Percent
Percent
-0.05 -0.1 -0.15
-0.1
10
20
-0.6 -0.8
-0.2
-1
-0.25
-1.2
30
10
Months
20
30
Months
Corporate Spread
10
20
30
Months
LFS unemployment 0.08
10 8
0.06
6
0.04
Percent
Basis Points
-0.4
4 2
0.02 0
0 -0.02 -2 -0.04 -4 10
20
30
10
Months Mean
20 Months 68% C.I.
30 90% C. I.
Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.
S10
Figure S.9 US Financial Shock – Specification with Unemployment (A) United States 1yr Rate
CPI
0
Industrial Production
0.05
0
-0.05
-0.1
-0.1
-0.15
-0.15
-0.2
Percent
Percent
Percentage Points
-0.05 0
-0.2
-0.4
-0.6 -0.2 10
20
30
10
Months
20
30
10
Months
Excess Bond Premium
20
30
Months
Bond Yield 0.2 0.15
Percentage Points
Basis Points
15
10
5
0.1 0.05 0
0 -0.05 -5 10
20
30
10
Months Mean
20 Months 68% C.I.
30 90% C. I.
(B) United Kingdom 1yr rate
CPI
0
0.05
Exch. Rate ($ per £)
-0.05
0
0
-0.1
Percent
-0.05
Percent
Percent
-0.1 -0.15 -0.2
-0.5
-0.25 -1 -0.15
-0.3 -0.35
-0.2 10
20
30
10
Months
20
30
Months
Corporate Spread
10
20
30
Months
LFS unemployment 0.05
8
4
0
Percent
Basis Points
6
2 0
-0.05 -2 -4 -6
-0.1 10
20
30
10
Months Mean
20 Months 68% C.I.
30 90% C. I.
Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.
S11
