Online Supplement to

“The International Credit Channel of US Monetary Policy and Financial Shocks” by A. Cesa-Bianchi and A. Sokol November 6, 2017

S1

S1

Impulse Responses: Robustness

In this section we provide a battery of checks suggesting that our estimation results are robust in several respects. Figures S.1-S.2 plot the impulse responses that we obtain when we impose additional sign restrictions in order to identify, in additional to a monetary policy and a financial shock, an aggregate demand and an aggregate supply shock.responses of the US and UK economy to a monetary policy shock; and Figure S.2 reports the responses of the US and UK economy to a financial shock. These results are very similar to our baseline. Figure S.3 reports the impulse responses that we obtain when we identify the financial shock without restricting inflation to fall. In this way we try to account for the fact that financial shocks might behave like supply shocks. The results with this alternative set of sign restrictions are very similar to our baseline. Figures S.4-S.5 report the results estimated on a shorter sample for the UK (starting in 1993:M1), when the UK adopted an inflation target as its nominal anchor following its exit from the Exchange Rate Mechanism. Note that we do not need here to reduce the sample for the US model since (as noted on the main text) the US and the UK models can be estimates separately. Given the shorter sample, we also reduce the number of lags in the UK model. We use 4 lags for the UK variables and 1 lag for the US variables, according to the Akaike criterion. Figure S.4 reports the responses of the US and UK economy to a monetary policy shock; and Figure S.5 reports the responses of the US and UK economy to a financial shock. Again, the results we obtain are in line with our baseline. Figures S.6-S.7 report the impulse responses computed over a shorter sample for both the UK and the US that excludes the global financial crisis, i.e. from 1979:M3 to 2007:M12. Figure S.6 reports the responses of the US and UK economy to a monetary policy shock; and Figure S.7 reports the responses of the US and UK economy to a financial shock. Not surprisingly, the period of the global financial crisis is important for the identification of financial shocks. However, the impulse responses in Figures S.6S.7 show that our results (despite begin less precisely estimated) remain qualitatively in line with our baseline estimates. Finally, Figures S.8-S.9 report the results that we obtain using Unemployment as a measure of economic activity in the United Kingdom (instead of industrial production, as in our baseline). Figure S.8 reports the responses of the US and UK economy to a monetary policy shock; and Figure S.9 reports the responses of the US and UK economy to a financial shock. Again, the impulse responses are very similar to our baseline, with unemployment being little affected by the monetary policy shock; and slightly more affected by the US financial shock (at lest at the 68% confidence interval), despite a sharp fall in the UK policy rate.

S2

Figure S.1 US Monetary Policy Shock – Identifying Other Shocks (A) United States 1yr Rate

CPI

Industrial Production

0.3 0.1 0

0.1

0

Percent

Percent

Percentage Points

0.2

-0.05

0

-0.1

-0.1 -0.2 -0.3 -0.4 -0.5

-0.1 -0.15 10

20

-0.6

30

10

20

Months

30

10

Months

Excess Bond Premium

20

30

Months

Bond Yield 0.25 0.2

Percentage Points

Basis Points

10

5

0.15 0.1 0.05 0

0

-0.05 10

20

30

10

20 Months

Months Mean

68% C.I.

30 90% C. I.

(B) United Kingdom 1yr rate

CPI

Exch. Rate ($ per £)

0.1 0.2

0.05 0.05

0

-0.05

Percent

-0.2

Percent

Percent

0 0

-0.05 -0.1

-0.1

-0.15

-0.15

-0.2

-0.4 -0.6 -0.8 -1 -1.2

10

20

30

10

Months

20

30

Months

Corporate Spread

10

20

30

Months

Industrial Production 0.1

10

Percent

Basis Points

0

5

-0.1

-0.2

0 -0.3

-0.4 10

20

30

10

Months Mean

20 Months 68% C.I.

30 90% C. I.

Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.

S3

Figure S.2 US Financial Shock – Identifying Other Shocks (A) United States 1yr Rate

CPI

0

Industrial Production 0.1

-0.05

0

0 -0.05

Percent

-0.1

Percent

Percentage Points

0.05

-0.1

-0.15

-0.1

-0.2 -0.3 -0.4 -0.5

-0.15

-0.2 -0.6

-0.2 10

20

30

10

Months

30

10

Months

Excess Bond Premium

20

30

Months

Bond Yield

15

0.2 0.15

Percentage Points

Basis Points

20

10

5

0.1 0.05 0

0

-0.05 -5 10

20

30

10

Months Mean

20 Months 68% C.I.

30 90% C. I.

(B) United Kingdom 1yr rate

0.05

CPI

0

Exch. Rate ($ per £)

-0.05

0

0 -0.1

-0.1

Percent

Percent

Percent

-0.05 -0.15 -0.2

-0.15

-0.25

-0.2

-0.3

-0.5

-1

10

20

30

10

Months

20

30

Months

Corporate Spread

10

20

30

Months

Industrial Production 0.1

10

Percent

Basis Points

0 5 -0.1

-0.2

0 -0.3 -5 10

20

30

10

Months Mean

20 Months 68% C.I.

30 90% C. I.

Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.

S4

Figure S.3 US Financial Shock – Unrestricted Inflation (A) United States 1yr Rate

CPI

Industrial Production

0.15

0.05

0

0.05

-0.05 -0.1

-0.2

Percent

Percent

Percentage Points

0.1 0

0 -0.05 -0.1

-0.15

-0.4

-0.6

-0.15

-0.2

-0.8

-0.2 10

20

30

10

Months

20

30

10

Months

Excess Bond Premium

20

30

Months

Bond Yield 0.2

15

Percentage Points

Basis Points

0.15 10

5

0

0.1 0.05 0 -0.05

10

20

30

10

Months Mean

20 Months 68% C.I.

30 90% C. I.

(B) United Kingdom 1yr rate

CPI

Exch. Rate ($ per £)

0.1

0

0

-0.1 -0.15

0

Percent

Percent

Percent

-0.05

-0.1

-0.5

-1 -0.2 -0.2 -0.25

-1.5 10

20

30

10

Months

20

30

Months

Corporate Spread

10

20

30

Months

Industrial Production

12 0 10 -0.1

6

Percent

Basis Points

8

4

-0.2 -0.3

2 0

-0.4 -2 10

20

30

10

Months Mean

20 Months 68% C.I.

30

90% C. I.

Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.

S5

Figure S.4 US Monetary Policy Shock – UK Sample Post 1993 (A) United States 1yr Rate

CPI

Industrial Production

0.3 0.1 0

0.1

0

Percent

Percent

Percentage Points

0.2

-0.05

0

-0.1

-0.1 -0.2 -0.3 -0.4 -0.5

-0.1 -0.15 10

20

-0.6

30

10

20

Months

30

10

Months

Excess Bond Premium

20

30

Months

Bond Yield 0.25 0.2

Percentage Points

Basis Points

10

5

0.15 0.1 0.05 0

0

-0.05 10

20

30

10

20 Months

Months Mean

68% C.I.

30 90% C. I.

(B) United Kingdom 1yr rate

CPI

Exch. Rate ($ per £) 0.6

0.05

0.4

0.05

0

0.2

Percent

Percent

Percent

0

-0.05

-0.4

-0.1

-0.05

0 -0.2

-0.6 -0.15 -0.8

-0.1 10

20

30

10

Months

20

30

Months

Corporate Spread

10

20

30

Months

Industrial Production 0.2

4

Percent

Basis Points

0.1 2

0

-2

0

-0.1

-0.2

-4

-0.3 10

20

30

10

Months Mean

20 Months 68% C.I.

30 90% C. I.

Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.

S6

Figure S.5 US Financial Shock – UK Sample Post 1993 (A) United States 1yr Rate

CPI

0

Industrial Production 0.1

0.05

0 -0.1

-0.05

-0.1

-0.1

-0.15

-0.15

-0.2

Percent

Percent

Percentage Points

-0.05 0

-0.2 -0.3 -0.4 -0.5 -0.6

-0.2 10

20

30

10

Months

20

30

10

Months

Excess Bond Premium

20

30

Months

Bond Yield 0.2 0.15

Percentage Points

Basis Points

15

10

5

0.1 0.05 0

0 -0.05 -5 10

20

30

10

Months Mean

20 Months 68% C.I.

30 90% C. I.

(B) United Kingdom 1yr rate

0.05

CPI

Exch. Rate ($ per £)

0 0

0.5

-0.05

-0.1

Percent

Percent

Percent

-0.05 -0.1 -0.15

0

-0.5 -0.2 -0.15 -1

-0.25 10

20

30

10

Months

20

30

Months

Corporate Spread

10

20

30

Months

Industrial Production

10

0.3

Percent

Basis Points

0.2 5

0

0.1 0 -0.1

-5

-0.2

10

20

30

10

Months Mean

20 Months 68% C.I.

30 90% C. I.

Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.

S7

Figure S.6 US Monetary Policy Shock – Excluding the Global Financial Crisis (A) United States 1yr Rate

CPI

0.3

Industrial Production

0.08

0.04

0

-0.2

Percent

0.1

Percent

Percentage Points

0 0.06

0.2

0.02 0 -0.02

-0.4 -0.6

-0.1 -0.04 -0.2

-0.06 10

20

-0.8

30

10

20

Months

30

10

Months

Excess Bond Premium

20

30

Months

Bond Yield 0.2 0.15

Percentage Points

Basis Points

10

5

0.1 0.05 0

0

-0.05 10

20

30

10

20 Months

Months Mean

68% C.I.

30 90% C. I.

(B) United Kingdom 1yr rate

CPI

Exch. Rate ($ per £)

0.1 1 0.05 0.05 0.5

0

-0.05

Percent

Percent

Percent

0 -0.05 -0.1

-0.1

-0.5

-0.15

-0.15

-1 10

20

30

10

Months

20

30

Months

Corporate Spread

0.3

10 8

0.2

6

0.1

Percent

Basis Points

0

4 2

10

20

30

Months

Industrial Production

0 -0.1

0 -0.2

-2

-0.3

-4 10

20

30

10

Months Mean

20 Months 68% C.I.

30 90% C. I.

Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.

S8

Figure S.7 US Financial Shock – Excluding the Global Financial Crisis (A) United States 1yr Rate

CPI 0

0

-0.2

-0.05 -0.04

Percent

-0.1

-0.06 -0.08

-0.15

Industrial Production

-0.1

-0.02

Percent

Percentage Points

0

-0.3 -0.4 -0.5

-0.1

-0.2

-0.6 -0.12 -0.7

-0.25 10

20

30

10

Months

20

30

10

Months

Excess Bond Premium

20

30

Months

Bond Yield 0.15

Percentage Points

Basis Points

10

5

0

0.1

0.05

0

-0.05 10

20

30

10

Months Mean

20 Months 68% C.I.

30 90% C. I.

(B) United Kingdom 1yr rate

CPI

Exch. Rate ($ per £)

0.05 0

1

0 -0.05 0.5

-0.1

-0.1

Percent

Percent

Percent

-0.05

-0.15

-0.15

-0.2

-0.2

-0.25

0

-0.5

-1

-0.3

-0.25 10

20

30

10

20

30

Months

Months

Corporate Spread

Industrial Production

10

20

30

Months

0.15

8

0.1 0.05 4

Percent

Basis Points

6

2

0 -0.05 -0.1

0

-0.15 -2

-0.2 10

20

30

10

Months Mean

20 Months 68% C.I.

30 90% C. I.

Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.

S9

Figure S.8 US Monetary Policy Shock – Specification with Unemployment (A) United States 1yr Rate

CPI

Industrial Production

0.3 0.1 0

0.1

0

0

Percent

Percent

Percentage Points

0.2

-0.05

-0.1

-0.1 -0.2 -0.3 -0.4 -0.5

-0.1 -0.15 10

20

-0.6

30

10

20

Months

30

10

Months

Excess Bond Premium

20

30

Months

Bond Yield 0.25 0.2

Percentage Points

Basis Points

10

5

0.15 0.1 0.05 0

0

-0.05 10

20

30

10

Months Mean

20 Months 68% C.I.

30 90% C. I.

(B) United Kingdom 1yr rate

CPI

0.1

Exch. Rate ($ per £)

0.05 0 0

0.05

-0.2

0

-0.05

Percent

Percent

Percent

-0.05 -0.1 -0.15

-0.1

10

20

-0.6 -0.8

-0.2

-1

-0.25

-1.2

30

10

Months

20

30

Months

Corporate Spread

10

20

30

Months

LFS unemployment 0.08

10 8

0.06

6

0.04

Percent

Basis Points

-0.4

4 2

0.02 0

0 -0.02 -2 -0.04 -4 10

20

30

10

Months Mean

20 Months 68% C.I.

30 90% C. I.

Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.

S10

Figure S.9 US Financial Shock – Specification with Unemployment (A) United States 1yr Rate

CPI

0

Industrial Production

0.05

0

-0.05

-0.1

-0.1

-0.15

-0.15

-0.2

Percent

Percent

Percentage Points

-0.05 0

-0.2

-0.4

-0.6 -0.2 10

20

30

10

Months

20

30

10

Months

Excess Bond Premium

20

30

Months

Bond Yield 0.2 0.15

Percentage Points

Basis Points

15

10

5

0.1 0.05 0

0 -0.05 -5 10

20

30

10

Months Mean

20 Months 68% C.I.

30 90% C. I.

(B) United Kingdom 1yr rate

CPI

0

0.05

Exch. Rate ($ per £)

-0.05

0

0

-0.1

Percent

-0.05

Percent

Percent

-0.1 -0.15 -0.2

-0.5

-0.25 -1 -0.15

-0.3 -0.35

-0.2 10

20

30

10

Months

20

30

Months

Corporate Spread

10

20

30

Months

LFS unemployment 0.05

8

4

0

Percent

Basis Points

6

2 0

-0.05 -2 -4 -6

-0.1 10

20

30

10

Months Mean

20 Months 68% C.I.

30 90% C. I.

Note. The solid line and shaded areas report the mean, 68% and 90% confidence intervals computed using wild bootstrap with with 1000 replications and 100 rotations per bootstrap draw.

S11

The International Credit Channel of US Monetary Policy ...

Nov 6, 2017 - alternative set of sign restrictions are very similar to our baseline. Figures S.4-S.5 report the results estimated on a shorter sample for the UK (starting in 1993:M1), when the UK adopted an inflation target as its nominal anchor following its exit from the Exchange Rate Mechanism. Note that we do not need ...

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