On the macroeconomic and wealth effects of unconventional monetary policy

Abstract

This paper focuses on the macroeconomic and wealth effects of unconventional monetary policy. To this end, we estimate a Bayesian Structural Vector Autoregression (B-SVAR) using U.S. monthly data for the post-Lehman Brotherscollapse period. We show that a positive shock to the growth rate of central bank reserves does not have a substantial impact on the industrial production or the consumer price. However, the shock gives a strong boost to asset prices, which is larger in magnitude for stock prices than for housing prices. Thus, unconventional monetary policy typically operates via portfolio rebalancing effects. A VAR counter-factual exercise confirms the role of the shocks to the growth rate of central bank reserves in explaining the dynamics of the variables included in the system, especially, in the case of asset prices. Finally, additional empirical assessments uncover an important change in the conduct of monetary policy from "standard" to "exceptional" times and the suitability of our model in capturing such structural transformation.