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Pushing on a string: US monetary policy is less powerful in recessions

Author

Listed:
  • Silvana Tenreyro

    (London School of Economics (LSE), Centre for Economic Performance (CEP)
    Centre for Macroeconomics (CFM))

  • Gregory Thwaites

    (Centre for Macroeconomics (CFM))

Abstract

We estimate the impulse response of key US macro series to the monetary policy shocks identified by Romer and Romer (2004), allowing the response to depend flexibly on the state of the business cycle. We find strong evidence that the effects of monetary policy on real and nominal variables are more powerful in expansions than in recessions. The magnitude of the difference is particularly large in durables expenditure and business investment. The effect is not attributable to differences in the response of fiscal variables or the external finance premium. We find some evidence that contractionary policy shocks have more powerful effects than expansionary shocks. But contractionary shocks have not been more common in booms, so this asymmetry cannot explain our main finding.

Suggested Citation

  • Silvana Tenreyro & Gregory Thwaites, 2013. "Pushing on a string: US monetary policy is less powerful in recessions," Discussion Papers 1301, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:1301
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    More about this item

    Keywords

    Asymmetric Effects of Monetary Policy; Transmission Mechanism; Recession; Durable Goods; Local Projection Methods;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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