The Bank of Japan published a working paper examining why the U.S. economy remained resilient despite rapid and significant monetary policy tightening since 2022. It concludes that the limited drag on real activity can be explained by uneven interest-rate sensitivity across GDP demand components, a composition shift toward service consumption, and a regime in which the credit channel provided less amplification. Using a Factor-Augmented VAR model, the authors find that demand components more reliant on borrowing are dampened by rate hikes, while components with lower borrowing reliance show muted responses. A smooth-transition local projection model, with the excess bond premium as the transition variable, suggests this sensitivity is time-varying: monetary tightening has stronger effects on borrowing-dependent components only when the credit channel is strongly operative, while low-borrowing components react weakly across regimes. The paper is circulated to stimulate discussion and the views expressed are those of the authors, not necessarily the official views of the Bank of Japan.
Bank of Japan 2026-04-16
Bank of Japan working paper links US post-2022 resilience to demand-component heterogeneity and a subdued credit channel
The Bank of Japan published a working paper analysing why the U.S. economy remained resilient despite rapid monetary tightening since 2022, attributing this to uneven interest-rate sensitivity across demand components, a shift toward service consumption, and a less amplifying credit channel. Using a Factor-Augmented VAR and a smooth-transition local projection model, the authors find that borrowing-dependent demand components are more strongly dampened by rate hikes when the credit channel is highly operative, while low-borrowing components show muted responses.