Macro Seminar - Pascal Paul (FRBSF)

Abstract: We provide two empirical strategies that allow researchers to decompose the aggregate causal effects of macroeconomic shocks into their underlying channels of transmission. Our first contribution is to define what we mean by a “channel of transmission”. We offer two such definitions, distinguished by whether or not they also take into account higher-order general equilibrium effects. Our first empirical strategy---which identifies our first, general equilibrium-free channel concept---relies on a combination of separately identified pieces of micro- and macro-level quasi-experimental variation. We apply it to several classic channels of monetary policy transmission, finding evidence for the quantitative importance of income and credit channels, but limited support for a collateral channel. Our second strategy instead relies on time series macro quasi-experimental variation alone. This strategy is a refinement of the popular practice of “zeroing-out” coefficients in Vector Autoregressions, and correctly identifies our second---general equilibrium-inclusive---channel concept. We use the approach to establish that asset price channels are quantitatively important in monetary transmission to household consumption.

Location: B06, Drayton House

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