RDP 2020-01: Credit Spreads, Monetary Policy and the Price Puzzle Read me

Benjamin Beckers

January 2020

This ‘read me’ file contains details of the code and data used in the RDP 2020-01. Relevant files are contained within ‘rdp-2020-01-supplementary-information.zip’. All code files and data are available to the public.

Data

For most data and their sources, see Appendix C of the Paper.

Australian Bureau of Statistics (ABS)

  • Consumer Price Index (CPI): All Groups: Index, seasonally adjusted, quarterly (ABS Cat No 6401.0 ‘Consumer Price Index, Australia’)
  • CPI – Trimmed Mean Excl Interest and Tax Changes: Index, seasonally adjusted, quarterly (ABS Cat No 6401.0 ‘Consumer Price Index, Australia’)
  • Gross Domestic Product (GDP): Chain Volume, $m, seasonally adjusted, quarterly (ABS Cat No 5206.0 ‘Australian National Accounts: National Income, Expenditure and Product’)
  • Unemployment Rate: %, seasonally adjusted, monthly (ABS Cat No 6202.0 ‘Labour Force, Australia’)

Reserve Bank of Australia (RBA)

  • Non-financial corporate BBB-rated bonds – Spread to AGS – 10 year target tenor (RBA statistical tables: F3 Aggregate Measures of Australian Corporate Bond Spreads and Yields: Non-Financial Corporate (NFC) Bonds)

Figure Data

Data for all figures are publically available and are provided in ‘rdp-2020-01-graph-data.xls’.

Code

The results reported in this RDP were generated using R version 3.5.1. To generate all results, run the master file ‘000_run_all.R’.

This file will run through the individual files in order. The final transformed data required to run the master file is provided in folder ‘Data’, files ‘data_final.Rdata’ or ‘data_final.xlsx’. Results shown in figures are exported in xlsx files, results in tables are provided in RStudio using the ‘stargazer’ package.

Collect data

File Description Output
00_collect_data.R and 00# … #a … e [Main file will only run for RBA users due to internal functionality] Collect and transform data on cash rate, RBA forecasts, US data from FRED, Australian lending and money market rates data_final.Rdata and data_final.xlsx

Plot descriptive data series

File Section in paper and description Output
01_plot_data.R Section 2: Collects and exports RBA forecasts and measures of credit spreads and uncertainty Figures 2, 3 and 4

Estimate monetary policy rules and obtain policy shocks

File Section in paper and description Output
02a_rr_regression.R Section 3.1: Estimates Romer and Romer (2004, RR) type regressions for the Bishop and Tulip (2017, BT) specification and the credit spreads-augmented monetary policy rule. Plot and export BT and BT-CS shock series. Table 1 and Figure 6, Shocks for Section 5
02b_rr_regression_anti
cipation_effects.R		 Section 3.2: Estimates anticipation of BT and BT-CS shocks by financial markets and purge shock series of anticipation. Plot and export unanticipated BT and BT-CS shock series. Table 3, Figures 5 and 8, Shocks for Section 5
02c_rr_regression_crexp.R Section 3.2: Estimates RR-type regressions for BT-specification and credit-spreads augmented models, augmented by the expected cash rate change from financial market data. Table 2
02d_rr_regression_sub sample.R Section 6.2: Replicates 02a_rr_regression.R for various sub-samples and purges resulting RR-type shocks of financial market expectations. Table 7, Shocks for Section 5
02e_rr_regression_alte
rnbase.R		 Appendix D: Estimates variations of RR-type regressions with alternative independent variables. Table D1, Shocks for Appendix D

Evaluate predictive content of credit spreads for RBA forecast errors

File Section in paper and description Output
03a_fc_err_cpii.R Section 4.1: Evaluates predictive content of individual credit spreads and uncertainty measures for the Bank's 4-quarter inflation forecast errors. Table 4
03b_fc_err_cpii_allhor.R Section 4.1: Evaluates predictive content of individual credit spreads and uncertainty measures for the Bank's 1 to 8-quarter inflation forecast errors Table D2
03c_fc_err_ur_allhor.R Section 4.2: Evaluates predictive content of individual credit spreads and uncertainty measures for the Bank's 1 to 8-quarter unemployment forecast errors Table 5
03d_fc_err_gdp_allhor.R Section 4.2: Evaluates predictive content of individual credit spreads and uncertainty measures for the Bank's 1 to 8-quarter GDP forecast errors Table 6
03e_fc_err_cpii_exgfc.R Section 6.2: Replicates 03a_fc_err_cpii.R for various sub-samples. Table 8

Estimate the effect of monetary policy on inflation, unemployment and GDP

File Section in paper and description Output
04a_svar_cr_vs_bt.R Section 1: Estimates SVARs with cash rate or original BT shock as policy variables Figure 1
04b_svar_bt_vs_btcs.R Section 5.1: Estimates SVARs with original BT or BT-CS shocks as policy variables Figure 7
04c_svar_unant.R Section 5.1: Estimates SVARs with unanticipated BT or BT-CS shocks as policy variables Figure 9
04d_svar_fincon.R Section 6.1: Estimates SVARs with original BT or unanticipated BT-CS shocks as policy variables, and domestic credit spreads as additional endogenous variables Figure 10
04e_svar_robust.R Section 6.1: Estimates various SVAR specifications with original BT or unanticipated BT-CS shocks as policy variables, including SVARs with 2 or 8 lags, different Cholesky ordering, and additional control variables Figure D1
04f_svar_altbase.R Appendix D: Estimates SVARs with original BT or unanticipated BT-CS shocks as policy variables from the alternative RR policy rule from ‘02e_rr_regression_alternbase.R’. Figure D3
04g_svar_btcs.R Appendix D: Estimates SVARs with original BT or BT-CS shocks as policy variables, with individual credit spreads accounted for in the RR policy rule Figure D4
05a_lp_base.R Appendix D: Estimates impulse responses from Local Projections with original BT or unanticipated BT-CS shocks as policy variables Figure D2
05b_lp_ex_gfc.R Section 6.2: Estimates impulse responses from Local Projections with original BT or unanticipated BT-CS shocks as policy variables, estimated over a sample excluding the GFC episode Figure 11

28 January 2020

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