The Short Lags of Monetary Policy

Co-authors: G.Buda (Barcelona BSE), Vasco carvalho ( Cambridge & CEPR)'Giancarlo Corsetti (EUI & CEPR)', Joao Duarte (Nova School of Business), Stephen Hansen (UCL), Afonso S. Moura (Banco de Portugal and Nova SB), Tomasa Rodrigo (BBVA Research), J. Rodriguez Mora (U. of Edimburgh and CEPR)

We build proxies for daily consumption and investment using bank transaction records and leverage on a wealth of administrative daily data for Spain, to examine the transmission of monetary policy shocks at high frequency. Using our comprehensive and granular dataset, we show that variables typically regarded as "slow moving" such as consumption and output, respond significantly within weeks. In contrast, the responses of aggregate employment and consumer prices display smooth declines peaking at long lags. Time aggregation to the quarterly frequency alters the identification of monetary policy transmission, shifting significant responses to longer lags, whereas weekly or monthly aggregation preserves daily-frequency results. Underlying the slow transmission, while downstream sectors tied to final consumption react rapidly, upstream sectors show delayed, protracted responses, with all sectors aligning at longer lags.

Álvaro Ortiz is the Head of Analysis with Big Data at BBVA Research. He manages the unit implementing the Big Data analysis for Economic, Social and Geopolitical Issues.