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Asymmetric Monetary Policy Effects in Germany

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Author Info
Vladimir Kuzin
Silke Tober
Abstract

In a small structural model we find asymmetries in the effects of monetary policy in Germany depending on whether the economy is in an upswing or a downswing. These two different regimes are also identified using a Markov-switching model and the Kalman filter. Our results indicate that the effects of monetary policy are significantly higher in a downswing than in an upswing. It follows not only that monetary policy has to raise interest rates markedly if an economy is overheating but also that once a downturn is discernible, interest rates have to be lowered rapidly so as to prevent an overly large reaction of the real economy.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.41210.de/dp397.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 397.

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Length: 15 p.
Date of creation: 2004
Date of revision:
Handle: RePEc:diw:diwwpp:dp397

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Related research
Keywords: Asymmetry; Monetary policy; Markov switching; Structural model;

Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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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.:
  1. Ming Chien Lo & Jeremy Piger, 2003. "Is the response of output to monetary policy asymmetric? evidence from a regime-switching coefficients model," Working Papers 2001-022, Federal Reserve Bank of St. Louis. [Downloadable!]
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  2. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March. [Downloadable!] (restricted)
  3. Laurence Ball & N. Gregory Mankiw, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," NBER Working Papers 4089, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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