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Asymmetries in the Cyclical Effects of Monetary Policy on Output: Some European Evidence

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  • Ramón María-Dolores

    (Universidad de Murcia)

Abstract

In this paper, I present empirical evidence for …ve European countries (Germany, France, UK, Spain and Italy) and the Euro-zone on whether monetary policy shocks produce di¤erent e¤ects on real output growth depending on the phase of the business cycle that the economy is undergoing (the socalled ‘state’ asymmetry). To do so, I apply a multivariate extension of the Hamilton(1989)’s Markov switching methodology. I …nd evidence in favour of ‘state’ asymmetries at the aggregate level in all the countries whereby interest-rate shocks have larger e¤ects in recessions than in expansions. I also carry out the analysis at the sectorial level and observe that this asymmetric effect seems to be di¤erent in the analysed countries when I focus on a sectorial analysis.

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Bibliographic Info

Paper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 02-04.

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Length: 47 pages
Date of creation: May 2002
Date of revision:
Handle: RePEc:aee:wpaper:0204

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Keywords: monetary policy; Taylor rule; asymmetries; Generalised Method of the Moments and Markov switching models;

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  1. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
  2. Mojon, Benoit & Smets, Frank & Vermeulen, Philip, 2002. "Investment and monetary policy in the euro area," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2111-2129, November.
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  9. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-28, April.
  10. Peersman, Gert & Smets, Frank, 1999. "The Taylor Rule: A Useful Monetary Policy Benchmark for the Euro Area?," International Finance, Wiley Blackwell, vol. 2(1), pages 85-116, April.
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  13. Goodfriend, Marvin, 1991. "Interest rates and the conduct of monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 34(1), pages 7-30, January.
  14. Dolado, Juan J. & María-Dolores, Ramón & Naveira Barrero, Manuel, 2000. "Asymmetries In Monetary Policy Rules: Evidence For Four Central Banks," CEPR Discussion Papers 2441, C.E.P.R. Discussion Papers.
  15. Ricardo J. Caballero & Eduardo M.R.A. Engel, 1992. "Price Rigidities, Asymmetries, and Output Fluctuations," NBER Working Papers 4091, National Bureau of Economic Research, Inc.
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  17. Artis, Michael J & Zhang, Wenda, 1995. "International Business Cycles and the ERM: Is there a European Business Cycle?," CEPR Discussion Papers 1191, C.E.P.R. Discussion Papers.
  18. Mark Gertler & Simon Gilchrist, 1991. "Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms," NBER Working Papers 3892, National Bureau of Economic Research, Inc.
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  20. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
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Cited by:
  1. Engelbert Stockhammer & Simon Sturn, 2012. "The impact of monetary policy on unemployment hysteresis," Applied Economics, Taylor & Francis Journals, vol. 44(21), pages 2743-2756, July.
  2. Oreste Napolitano & Alberto Montagnoli, 2010. "The European Unemployment Gap and the Role of Monetary Policy," Economics Bulletin, AccessEcon, vol. 30(2), pages 1346-1358.

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