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Are the Effects of Monetary Policy Asymmetric?

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Author Info
René Garcia () (Département de sciences économiques, CIRANO, CRDE, Université de Montréal)
Huntley Schaller () (Department of Economics, Carleton University)

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Abstract

This paper focuses on whether monetary policy has asymmetric effects. By building on the Markov switching model introduced by Hamilton (1989), we examine questions like: Does monetary policy have the same effect regardless of the current phase of economic fluctuations? Given that the economy is currently in a recession, does a fall in interest rates increase the probability of an expansion? Does monetary policy have an incremental effect on the growth rate within a given state, or does it only affect the economy if it is sufficiently strong to induce a state change (e.g., from recession to expansion)? We find economically and statistically significant evidence of asymmetry. As suggested by models with sticky prices or finance constraints, interest rate changes have larger effects during recessions. Interest rates also have substantial effects on the probability of a state switch.

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Publisher Info
Paper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 99-17.

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Length: 27 pages
Date of creation: Jul 1999
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Publication status: Published: Carleton Economic Paper
Handle: RePEc:car:carecp:99-17

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Related research
Keywords: monetary policy; asymmetries; Markov switching models;

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Christian Melzer & Thorsten Neumann, 2005. "Changing Effects of Monetary Policy in the U.S. –Evidence from a Time-Varying Coefficient VAR," Computing in Economics and Finance 2005 144, Society for Computational Economics. [Downloadable!]
  2. Tuysuz, Sukriye, 2007. "The asymmetric impact of macroeconomic announcements on U.S. Government bond rate level and volatility," MPRA Paper 5381, University Library of Munich, Germany. [Downloadable!]
  3. A. Olmedo, 2002. "Asymmetries in the Central Bank Behaviour," THEMA Working Papers 2002-06, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
  4. Pichette, Lise, 1998. "La politique monétaire a-t-elle des effets asymétriques sur l'emploi?," Working Papers 98-17, Bank of Canada. [Downloadable!]
  5. Erdinc Telatar & Mubariz Hasanov, 2006. "The asymmetric effects of monetary shocks: the case of Turkey," Applied Economics, Taylor and Francis Journals, vol. 38(18), pages 2199-2208, October. [Downloadable!] (restricted)
  6. Munehisa Kasuya, 2005. "Regime-switching approach to monetary policy effects," Applied Economics, Taylor and Francis Journals, vol. 37(3), pages 307-326, February. [Downloadable!] (restricted)
  7. John Bennett & Manfredi M. A. La Manna, 2001. "Reversing the Keynesian Asymmetry," American Economic Review, American Economic Association, vol. 91(5), pages 1556-1563, December. [Downloadable!] (restricted)
  8. Ramón María-Dolores, 2001. "Asimetrías en los efectos de la política monetaria en España (1977-1996)," Investigaciones Economicas, Fundación SEPI, vol. 25(2), pages 391-415, May. [Downloadable!]
  9. W.A. Bruinshoofd & B. Candelon, 2004. "Nonlinear monetary policy in europe: fact or myth?," WO Research Memoranda (discontinued) 758, Netherlands Central Bank, Research Department. [Downloadable!]
    Other versions:
  10. Tiff Macklem & Alain Paquet & Louis Phaneuf, 1996. "Asymmetric Effects of Monetary Policy: Evidence from the Yield Curve," Cahiers de recherche CREFE / CREFE Working Papers 42, CREFE, Université du Québec à Montréal. [Downloadable!]
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  12. Edoardo Otranto & Giampiero M. Gallo, 2001. "A Nonparametric Bayesian Approach to Detect the Number of Regimes in Markov Switching Models," Econometrics Working Papers Archive wp2001_04, Universita' degli Studi di Firenze, Dipartimento di Statistica "G. Parenti". [Downloadable!]
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  13. Jan Jacobs & Jan Kakes, 2000. "Credit demand asymmetry in the Netherlands 1983-1997," MEB Series (discontinued) 2000-11, Netherlands Central Bank, Monetary and Economic Policy Department. [Downloadable!]
  14. Roman Sustek, 2005. "Plant-Level Nonconvexities and the Monetary Transmission Mechanism," Working Papers 2005/09, Czech National Bank, Research Department. [Downloadable!]
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  16. Marilyne Huchet-Bourdon, 2003. "Does single monetary policy have asymmetric real effects in EMU ?," Post-Print halshs-00143785_v1, HAL. [Downloadable!]
  17. Gert Peersam & Frank Smets, 2002. "The industry effects of monetary policy in the Euro area," Working Paper Series 165, European Central Bank. [Downloadable!]
    Other versions:
  18. Fabio ALESSANDRINI, 2003. "Some Additional Evidence from the Credit Channel on the Response to Monetary Shocks: Looking for Asymmetries," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 03.04, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
  19. Sylvia Kaufmann, 2001. "Asymmetries in bank lending behavior: Austria during the 1990s," Working Paper Series 097, European Central Bank. [Downloadable!]
    Other versions:
  20. M Sensier & D R Osborn & N Öcal, 2002. "Asymmetric Interest Rate Effects for the UK Real Economy," Centre for Growth and Business Cycle Research Discussion Paper Series 10, Economics, The Univeristy of Manchester. [Downloadable!]
    Other versions:
  21. Maximo Camacho, 2002. "Nonlinear stochastic trends and economic fluctuations," Computing in Economics and Finance 2002 274, Society for Computational Economics. [Downloadable!]
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