Title page

Contents

Abstract 2

Non-technical summary 3

I. Introduction 5

II. Framework 10

II.A. Model specification 10

II.B. The state variable 12

II.C. Nonlinear Structural Impulse Responses 13

III. Identification of the Monetary Policy Shocks 14

III.A. Monetary Policy Surprises: Nonlinear Regression 15

III.B. Additional Issues 17

IV. The Impact of Monetary Policy Shocks 19

V. On the Difference with Tenreyro and Thwaites (2016) 23

V.A. Tenreyro and Thwaites (2016) and the STVAR 23

V.B. Tenreyro and Thwaites (2016) and the TVAR 26

V.C. High-frequency policy surprises and local projections 27

VI. Robustness Checks 28

VII. Conclusions 29

References 30

Acknowledgements 48

Table 1. Predictive Regressions using Macroeconomic and Financial Data 46

Table 2. State-Dependent Responses of Asset Prices at Impact and Six Months Ahead 47

Figure 1. Underlying Real GDP Growth and 18-month Moving Average 37

Figure 2. Underlying Real GDP Growth and Orthogonolised Monetary Policy Surprises 38

Figure 3. Nonlinear Impact of Monetary Policy Shocks 39

Figure 4. Nonlinear Impact of Monetary Policy Shocks on the Yield Curve 40

Figure 5. Nonlinear Impact of Monetary Policy Shocks on Expenditute Aggregates 41

Figure 6. Policy Surprises versus Methods in Recessions and Expansions 42

Figure 7. Romer-Romer Surprises in Recessions and Expansions 43

Figure 8. Robustness Checks of the Baseline Model: State-Dependent IRFs 44

Figure 9. State-Dependent IRFs using alternative Nonlinear Models 45