Summary
Lending conditions have tightened materially since the start of the hiking cycle, and look likely to tighten further following March’s banking sector volatility. In this note we derive working estimates of the impact of this additional tightening on GDP and inflation. This is done by using a flexible econometric approach allowing for time-varying parameters and volatility, and running various tightening scenarios through our model. In part II, forthcoming, we outline the implications of these estimates for our market and central bank views.
Our key conclusions are:
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