Is There an Asymmetric Effect of Monetary Policy over Time? A Bayesian Analysis
AbstractThe present paper assesses whether monetary policy effects are asymmetric over the business cycle by estimating a univariate model for GDP including additionally the first difference of the 3-month Austrian interest rate as a measure for monetary policy. The asymmetry of the effects is captured by allowing for state-dependent parameters where the latent state variable follows a Marov switching process. The model is estimated within a Bayesian framework using Markov Chain Monte Carlo simulation methods. Model selection and specification tests are performed by means of marginal likelihood. The results document significant negative effects of monetary policy during periods of below-average growth, while the effect seems insignificant during periods of normal- or above-average growth. These results corroborate those derived in theoretical models assuming price rigidities and implying a convex supply curve. Additionally, the concern of using appropriate state-identifying restrictions is raised to obtain an unbiased posterior inference. Finally, the analysis concludes by assessing the robustness of the results w.r.t. alternative measures of monetary policy. JEL classification:
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Bibliographic InfoPaper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 45.
Date of creation: 18 May 2001
Date of revision:
Postal: Oesterreichische Nationalbank, Economic Studies Division, c/o Beate Hofbauer-Berlakovich, POB 61, A-1011 Vienna, Austria
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- Binder, Michael & Gross, Marco, 2013. "Regime-switching global vector autoregressive models," Working Paper Series 1569, European Central Bank.
- Kuang-Liang Chang & Chi-Wei He, 2010. "Does The Magnitude Of The Effect Of Inflation Uncertainty On Output Growth Depend On The Level Of Inflation?," Manchester School, University of Manchester, vol. 78(2), pages 126-148, 03.
- Sylvia Kaufmann, 2003. "The business cycle of European countries. Bayesian clustering of country-individual IP growth series," Working Papers 83, Oesterreichische Nationalbank (Austrian Central Bank).
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