Revisiting the monetary transmission mechanism through an industry-level differential approach

Combining industry-level data on output and prices with novel monetary policy shock estimates for 102 countries, we analyze how the effects of monetary policy vary with industry characteristics. Next to being interesting in their own right, our findings are informative on the importance of various transmission mechanisms, as they are thought to vary systematically with the included characteristics. Results suggest that monetary policy has greater output effects in industries featuring assets that are more difficult to collateralize or consisting of smaller firms, consistent with the credit channel, followed by industries producing durables, as predicted by the interest rate channel. The credit channel is stronger during bad times as well as in countries with lower levels of financial development, in line with financial accelerator logic. We do not find support for the cost channel of monetary policy, and only limited support for a channel running via exports. Our database (containing monetary policy shock estimates for 176 countries) may be of independent interest to researchers.