Industry effects of unconventional monetary policy, within and across countries

Abstract

While conventional monetary policy causes differential impacts on industry output, how unconventional monetary policy affects industries across countries is as of yet unknown. This paper characterizes the effects of unconventional monetary policy on domestic industry output and spillover effects on foreign industry output between the US, the UK, and Japan. I set up a Bayesian global vector autoregressive model and identify monetary policy shocks using a sign restrictions identification. I find that the effects on output have substantial heterogeneity both within a country and across countries, however, the pattern of the industry-level output responses within a country and across countries are similar to each other. Regression analysis indicates that industries with lower working capital and larger firm size are associated with a large industry output response to unconventional policy, indicating the relevance of the interest rate channel and portfolio balance channel. Overall, unconventional policy can be used as another tool in the policymakers’ toolbox with similar industry impacts as conventional policy but with somewhat different transmission mechanisms.