IMF Working Papers

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

Author/Editor:

Sangyup Choi ; Tim Willems ; Seung Yong Yoo

Publication Date:

January 28, 2022

Electronic Access:

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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.

Series:

Working Paper No. 2022/017

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)

Frequency:

regular