Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/246326 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 2109
Publisher: 
Johannes Kepler University of Linz, Department of Economics, Linz
Abstract: 
Recent advances in the use of high-frequency external instruments to separate the signaling channel of monetary policy from exogenous interest rate changes have solved a number of puzzling responses to supposedly contractionary monetary policy shocks. We show that their effects on U.S. banks' balance sheets, asset markets, and economic activity hinge on the level of geopolitical risk at the time of the FOMC announcement. The S&P500 falls and credit spreads rise by more, while bank balance sheets contract, if geopolitical risk is above its sample median in the quarter or month of the shock. The state-dependent effects are due to a tightening of credit- and risk-related national financial conditions and imply that, while preparing its monetary policy decisions, the Board of Governors should also keep track of the geopolitical environment.
Subjects: 
C&I loans
Geopolitical risk
Monetary policy
State-dependent effects
JEL: 
E43
E44
E51
E52
Document Type: 
Working Paper

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