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Asymmetric Effects of Monetary Policy: Evidence from the Yield Curve

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Author Info
Tiff Macklem () (Bank of Canada)
Alain Paquet () (Center for Research on Economic Fluctuations and Employment, UQAM)
Louis Phaneuf () (Center for Research on Economic Fluctuations and Employment, UQAM)

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Abstract

Recent empirical studies examining the asymmetric effects of monetary shocks on economic activity do not systematically control for the non-monetary sources of fluctuations as well as the endogenous component of monetary policy. The evidence of asymmetry could simply reflect the failure to control for these omitted factors. In this paper, we reconsider the asymmetric effects of monetary shocks in the context of a small open economy using information from the yield curve to measure the stance of domestic monetary policy, while allowing both real and monetary foreign shocks to have asymmetric effects on output. Our principal finding is that while controlling for foreign factors dampens the asymmetry in the effects of exogenous domestic monetary shocks, there is nonetheless strong evidence of asymmetry when the effects of the exogenous and systematic components of the yield spread are considered jointly. We find no evidence of asymmetry in the effects of real factors.

Des études empiriques récentes qui ont considéré les effets asymétriques des chocs monétaires sur l'activité économique n'ont pas contrôlé ni pour des sources non monétaires des fluctuations, ni pour la composante endogène de la politique monétaire. Les éléments d'évidence empirique en faveur de l'asymétrie pourraient simplement refléter l'omission de certains de ces autres facteurs. Nous reconsidérons ici les effets asymétriques des chocs monétaires dans le contexte d'une petite économie ouverte en utilisant l'information de la courbe de rendements pour mesurer l'état de la politique monétaire domestique, tout en permettant à des facteurs réels et monétaires extérieurs d'influencer asymétriquement la production. Notre principal résultat est de trouver une forte évidence d'asymétrie des chocs monétaires lorsque les effets des composantes exogène et systématique de la courbe de rendement sont pris en compte conjointement, même en contrôlant pour les facteurs externes. Cependant, nos résultats empiriques ne supportent pas l'existence d'effets asymétriques associés aux facteurs réels.

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Publisher Info
Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 42.

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Length: 30 pages
Date of creation: Aug 1996
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Handle: RePEc:cre:crefwp:42

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Related research
Keywords: Monetary policy asymmetry yield curve

Find related papers by JEL classification:
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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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    Other versions:
  3. Armour, J. & Engert, W. & Fung, B.S.C., 1996. "Overnight Rate Innovations as a measure of monetary Policy Shocks in Vector Autoregressions," Working Papers 96-4, Bank of Canada. [Downloadable!]
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    Other versions:
  8. J. Bradford De Long & Lawrence H. Summers, . "How Does Macroeconomic Policy Matter?," J. Bradford De Long's Working Papers _130, University of California at Berkeley, Economics Department. [Downloadable!]
  9. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April. [Downloadable!] (restricted)
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    Other versions:
  11. Frederic S. Mishkin, 1982. "Does Anticipated Monetary Policy Matter? An Econometric Investigation," NBER Working Papers 0506, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, vol. 67(2), pages 101-15, March.
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  13. Oxley, Les & McAleer, Michael, 1993. " Econometric Issues in Macroeconomic Models with Generated Regressors," Journal of Economic Surveys, Blackwell Publishing, vol. 7(1), pages 1-40.
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  15. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February. [Downloadable!] (restricted)
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  18. Christina D. Romer & David H. Romer, 1990. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," NBER Working Papers 2966, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Gregory, Allan W & Raynauld, Jacques, 1985. "An Econometric Model of Canadian Monetary Policy over the 1970s," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(1), pages 43-58, February. [Downloadable!] (restricted)
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  21. John Ammer & Allan D. Brunner, 1995. "When is monetary policy effective?," International Finance Discussion Papers 520, Board of Governors of the Federal Reserve System (U.S.).
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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. Atta-Mensah, Joseph & Tkacz, Greg, 1998. "Predicting Canadian Recessions Using Financial Variables: A Probit Approach," Working Papers 98-5, Bank of Canada. [Downloadable!]
  2. Gabriel Srour, 2001. "Why Do Central Banks Smooth Interest Rates?," Working Papers 01-17, Bank of Canada. [Downloadable!]
  3. Randall E. Parker & Phillip Rothman & Original: August 2000. This version: June 2003., . "An Examination of the Asymmetric Effects of Money Supply Shocks in the Pre-World War I and Interwar Periods," Working Papers 0302, East Carolina University, Department of Economics. [Downloadable!]
    Other versions:
  4. Anna Florio, 2005. "Asymmetric monetary policy: empirical evidence for Italy," Applied Economics, Taylor and Francis Journals, vol. 37(7), pages 751-764, April. [Downloadable!] (restricted)
  5. Richard Black & David Rose, 1997. "Canadian Policy Analysis Model: CPAM," Working Papers 97-16, Bank of Canada. [Downloadable!]
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