A1481
Title: How nonlinear is monetary policy
Authors: Dilan Aydin Yakut - University of Bologna, Central Bank of Ireland (Ireland) [presenting]
David Byrne - Central Bank of Ireland (Ireland)
Robert Goodhead - Central Bank of Ireland (Ireland)
Abstract: The idea that monetary policy might have non-linear effects has a long history, dating back to Keynes' argument that monetary easing during deep recessions would be like pushing on a string. The position that the sources of monetary policy non-linearity may be highly multi-dimensional is taken. The focus is on potential state-dependent responses for yields and equities. Rather than a piecemeal investigation of a few potential sources of non-linearity, as is common in existing empirical work, we simultaneously examine the role of many variables. To do this, we combine an event study approach with large N methods to assess the role of potential interactors. We handle dimension reduction with both sparse and dense techniques, using LASSO and factor specifications to capture nonlinearity. We use monetary shocks identified by high-frequency information from Fed meeting days. Results indicate a role for both financial and macroeconomic variables in determining non-linearity.
