(Research Paper) The Limited Effects of Post-Pandemic U.S. Monetary Policy Tightening: Demand Composition and the Credit Channel

The Limited Effects of Post-Pandemic U.S. Monetary Policy Tightening:Demand Composition and the Credit Channel 日本語 April 16, 2026 Kenta Kinehara*1 Tatsuyoshi Okimoto*2 Hiroki Yamamoto*3 Full Text [PDF 7,285KB] Abstract This paper investigates the reasons behind the resilience of the U.S. economy despite the rapid and significant monetary policy tightening since 2022, focusing on two perspectives: heterogeneity among GDP demand components, and the time-varying nature of the credit channel. Methodologically, we employ a Factor-Augmented VAR model to examine the heterogeneity in the effects of monetary policy across demand components. Subsequently, we estimate a smooth-transition Local Projection model with the excess bond premium as a transition variable to quantify the time-varying effects of monetary policy depending on financial market conditions. The analysis reveals that demand components with higher reliance on borrowing are dampened by rate hikes, while components with lower reliance exhibit muted responses. Furthermore, the results show that the effects of monetary policy intensify for demand components with higher borrowing dependence only when the credit channel is strongly operative. Conversely, components with lower borrowing dependence demonstrate weak reactions irrespective of the prevailing regime. These findings suggest that the limited downward impact of the monetary policy tightening since 2022 on the real economy can be explained by the heterogeneity in responses among demand components, the "composition effect" linked to the growing recent dominance of service consumption in the U.S. economy, and the "regime effect" characterized by the subdued amplification role of the credit channel during this period. This paper contributes to the literature by providing a unified framework to analyze both composition and regime effects. JEL classification E21, E22, E44, E52 Keywords Monetary Policy, Credit Channel, FAVAR, Smooth-transition Local Projection In writing this paper, we received valuable comments from Ken Chikada, Masato Higashi, Akihisa Ishikawa, Yuto Ishikuro, Sohei Kaihatsu, Yoshiyuki Kurachi, Takushi Kurozumi, Taichi Matsuda, Jouchi Nakajima, Mototsugu Shintani, Hana Zamoto and BOJ staff members. However, any errors remaining in this paper are those of the authors themselves. Additionally, the views expressed herein are those of the authors and do not necessarily reflect the official views of the Bank of Japan. *1International Department E-mail : kenta.kinehara@boj.or.jp *2Keio University and International Department E-mail : tatsuyoshi.okimoto@keio.jp *3International Department E-mail : hiroki.yamamoto@boj.or.jp Notice Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of the authors and do not necessarily reflect those of the Bank. If you have any comments or questions on the working paper series, please contact the authors. When making a copy or reproduction of the content for commercial purposes, please contact the Public Relations Department (post.prd8@boj.or.jp) at the Bank in advance to request permission. When making a copy or reproduction, the source, Bank of Japan Working Paper Series, should explicitly be credited.