Working Paper No. 18
By Spencer Dale and Andrew G Haldane
We estimate a small sectoral VAR model of the UK macroeconomy. This model is then used to simulate the effects of an exogenous monetary policy shock upon asset prices, bank balance sheet variables and final target variables (real output and prices), for the personal and corporate sectors. Significant sectoral differences are found among the channels of monetary transmission. In addition, the use of sectoral data facilitates the identification of distinct money and credit channels in the transmission of monetary policy. These results contrast with the ambiguous findings on the roles of money and credit in the literature to date.