Essays on the Formulation and Effects of Monetary Policy
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Central banks continuously adapt their monetary policy formulation and implementation to meet new economic challenges. After the slow recovery from the global financial crisis, marked by extended periods of low interest rates and inflation, the recent post-pandemic period has seen a spike in inflation and aggressive monetary tightening. These events have led to questions about the effectiveness of monetary policy in influencing macroeconomic conditions. In addition, the significant changes in monetary operating procedures since 2008 have led to new research on how the implementation of monetary policy (that is, the regime of monetary policy itself) affects macroeconomic outcomes. In this context, this dissertation applies time series analysis to examine three potential state-dependent or nonlinear relationships that are relevant to monetary policymakers. Chapter 1 studies the role of bank reserves in determining short-term interest rates in the United States between 2009 to 2020 using threshold models that distinguish between periods of high or low reserve balances. Chapter 2, co-authored with Michael D. Bradley, examines the state dependency of monetary policy effectiveness. We use a new approach, and not only consider the state of the economy but also the state of monetary policy. Chapter 3 analyzes the dynamics and time series properties of inflation in six advanced economies over the past 60 years with a testing procedure that differentiates nonlinearity from nonstationarity.
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