When is monetary policy effective?

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When is monetary policy effective?

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John Ammer
Allan D. Brunner

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Allan D. Brunner

Abstract

In this paper, we investigate a number of issues that have not been completely addressed in previous studies regarding the possible asymmetric effects of monetary policy. Overall, we interpret our results as weak evidence in favor of sticky-wage and sticky-price theories and strong evidence against credit-rationing theories. First, we find that models that allow for asymmetries with respect to contractionary/expansionary monetary policy fit the data better than models that allow for asymmetries associated with the state of the business cycle. Second, we find that contractionary monetary policy shocks have a much larger effect on output than expansionary policy shocks, although this result is somewhat sensitive to the econometric specification. Finally, we find that monetary policy shocks that occur during economic expansions appear to have about the same effect as shocks that occur during recessions; this result is robust to various econometric specifications.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 520.

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Date of creation: 1995
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Handle: RePEc:fip:fedgif:520

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Gertler, Mark, 1988. "Financial Structure and Aggregate Economic Activity: An Overview," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(3), pages 559-88, August. [Downloadable!] (restricted)
Other versions:
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Ben S. Bernanke, 1990. "On the predictive power of interest rates and interest rate spreads," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 51-68.
Other versions:
- Ben Bernanke, 1990. "On the Predictive Power of Interest Rates and Interest Rate Spreads," NBER Working Papers 3486, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June. [Downloadable!] (restricted)
Other versions:
- Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Allan D. Brunner, 1994. "On the dynamic properties of asymmetric models of real GNP," International Finance Discussion Papers 489, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
Other versions:
- Allan D. Brunner, 1997. "On The Dynamic Properties Of Asymmetric Models Of Real Gnp," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 321-352, May. [Downloadable!] (restricted)
Laurence Ball & N. Gregory Mankiw, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," NBER Working Papers 4089, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Other versions:
- Simon G. Gilchrist & Ben Bernanke & Mark Gertler, 1994. "The financial accelerator and the flight to quality," Finance and Economics Discussion Series 94-18, Board of Governors of the Federal Reserve System (U.S.).
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Brunner, Allan D, 1992. "Conditional Asymmetries in Real GNP: A Seminonparametric Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(1), pages 65-72, January.
Other versions:
- Allan D. Brunner, 1990. "Conditional asymmetries in real GNP: a semi-nonparametric approach," Finance and Economics Discussion Series 140, Board of Governors of the Federal Reserve System (U.S.).
Allan D. Brunner, 1994. "The federal funds rate and the implementation of monetary policy: estimating the Federal Reserve's reaction function," International Finance Discussion Papers 466, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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Other versions:
- Potter, Simon M, 1995. "A Nonlinear Approach to US GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 109-25, April-Jun. [Downloadable!] (restricted)
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Other versions:
- David B. Gordon & Eric M. Leeper, 1992. "The dynamic impacts of monetary policy: an exercise in tentative identification," Working Paper 92-13, Federal Reserve Bank of Atlanta.
- David B. Gordon & Eric M. Leeper, 1993. "The dynamic impacts of monetary policy: an exercise in tentative identification," Working Paper 93-5, Federal Reserve Bank of Atlanta.
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Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September. [Downloadable!] (restricted)
Other versions:
- Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
- Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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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!]
Mohd Zaini Abd Karim & Amy Azhar Mohd Harif & Azira Adziz, 2006. "Monetary Policy and Sectoral Bank Lending in Malaysia," Global Economic Review, Taylor and Francis Journals, vol. 35(3), pages 303-326, September. [Downloadable!] (restricted)

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