Some Additional Evidence from the Credit Channel on the Response to Monetary Shocks: Looking for Asymmetries

The credit channel of monetary policy has both cross-sectional and timeseries implications for the reaction of the economy to monetary shocks. This paper focuses on the more rarely investigated time-series aspect and shows that the economy has varying sensitivity to monetary shocks over time. By using a Threshold VAR model, we find that output and credit spreads react much stronger to monetary shocks when cash flows or dividends are low. This distinction in the regimes is in particular more significant than one based on the stage of the business cycle or on the stance of monetary policy. In this sense, the response to a tightening for instance cannot be considered as constant and traditional impulse-response functions have to be taken with some caution.