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Nonlinearities in the Transmission Between Financial Stress, Monetary Policy and the Business Cycle - a Threshold VAR Approach

Warström, Olle LU (2017) NEKN01 20171
Department of Economics
Abstract
This paper investigates nonlinear transmissions between financial stress, monetary policy and the business cycle. Using a threshold VAR model on Swedish quarterly data the presence of nonlinearities in aforementioned transmission is corroborated by the nonlinearity-test suggested by Hansen (1996). Further, a nonlinear impulse-response analysis reveals several results worthwhile mentioning; (i) shocks occurring in a financially stressful regime on average seem to have a greater impact on GDP growth; (ii) monetary policy shocks during financially stressful times seem to have a greater and more immediate but less persistent effect on output growth; (iii) financial shocks occurring in times already characterized by high financial stress create... (More)
This paper investigates nonlinear transmissions between financial stress, monetary policy and the business cycle. Using a threshold VAR model on Swedish quarterly data the presence of nonlinearities in aforementioned transmission is corroborated by the nonlinearity-test suggested by Hansen (1996). Further, a nonlinear impulse-response analysis reveals several results worthwhile mentioning; (i) shocks occurring in a financially stressful regime on average seem to have a greater impact on GDP growth; (ii) monetary policy shocks during financially stressful times seem to have a greater and more immediate but less persistent effect on output growth; (iii) financial shocks occurring in times already characterized by high financial stress create larger contractions in output growth compared to those occurring under low financial stress and (iv); positive GDP growth shocks starting in periods characterized by high financial stress seem to worsen the level of financial stress. (Less)
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author
Warström, Olle LU
supervisor
organization
course
NEKN01 20171
year
type
H1 - Master's Degree (One Year)
subject
keywords
Financial Stress, Transmission mechanism, nonlinearities
language
English
id
8913443
date added to LUP
2017-07-10 13:52:55
date last changed
2017-07-10 13:52:55
@misc{8913443,
  abstract     = {This paper investigates nonlinear transmissions between financial stress, monetary policy and the business cycle. Using a threshold VAR model on Swedish quarterly data the presence of nonlinearities in aforementioned transmission is corroborated by the nonlinearity-test suggested by Hansen (1996). Further, a nonlinear impulse-response analysis reveals several results worthwhile mentioning; (i) shocks occurring in a financially stressful regime on average seem to have a greater impact on GDP growth; (ii) monetary policy shocks during financially stressful times seem to have a greater and more immediate but less persistent effect on output growth; (iii) financial shocks occurring in times already characterized by high financial stress create larger contractions in output growth compared to those occurring under low financial stress and (iv); positive GDP growth shocks starting in periods characterized by high financial stress seem to worsen the level of financial stress.},
  author       = {Warström, Olle},
  keyword      = {Financial Stress,Transmission mechanism,nonlinearities},
  language     = {eng},
  note         = {Student Paper},
  title        = {Nonlinearities in the Transmission Between Financial Stress, Monetary Policy and the Business Cycle - a Threshold VAR Approach},
  year         = {2017},
}