Abstract

The transmission of monetary policy to the economy is generally thought to have long and variable lags. In this paper we quantitatively review the modern literature on monetary transmission to provide stylized facts on the average lag length and the sources of variability. We collect 67 published studies and examine when prices bottom out after monetary contraction. The average transmission lag is 29 months, and the maximum decrease in prices reaches 0.9% on average after a one-percentage-point hike in the policy rate. Transmission lags are longer in developed economies (25-50 months) than in transition economies (10-20 months). We find that the factor most effective in explaining this heterogeneity is financial development: greater financial development is associated with slower transmission. Our results also suggest that researchers who use monthly data instead of quarterly data report systematically faster transmission.

suggested citation: Tomas Havranek & Marek Rusnak (2013), "Transmission Lags of Monetary Policy: A Meta-Analysis." International Journal of Central Banking 9(4), pp. 39-76.

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Headline result

Transmission lag of monetary policy to prices: the meta-analytic estimate is 29 months on average, but 25-50 months in developed economies against 10-20 in post-transition ones; the factor explaining that gap is financial development, with greater development meaning slower transmission (prices bottom out 0.9% below baseline after a 1-percentage-point hike), based on 67 published studies (Havranek and Rusnak 2013, International Journal of Central Banking).

How to cite

Tomas Havranek & Marek Rusnak (2013), "Transmission Lags of Monetary Policy: A Meta-Analysis." International Journal of Central Banking 9(4), pp. 39-76.

BibTeX 
@article{havranek2013lags,
  author  = {Tomas Havranek and Marek Rusnak},
  title   = {Transmission Lags of Monetary Policy: A Meta-Analysis},
  journal = {International Journal of Central Banking},
  year    = {2013},
}