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Asymmetric effects of monetary policy in the US: Positive vs. negative or big vs. small?

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  • Morten O. Ravn
  • Martín Solà

Abstract

This paper reconsiders the empirical evidence on the asymmetric output effects of monetary policy. Asymmetric effects is a common feature of many theoretical models, and there are many different versions of such asymmetries. We concentrate on the distinctions between positive and negative money-supply changes, big and small changes in money-supply, and possible combinations of the two asymmetries. Earlier research has found empirical evidence in favor of the former of these in US data. Using M1 as the monetary variable we find evidence in favor of neutrality of big shocks and non-neutrality of small shocks. The results may, however, be affected by structual instability of M1 demand. Thus, we substitute M1 with the federal funds rate. In these data we find that only small negative shocks affect real aggregate activity. The results are interpreted in terms of menu-cost models.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 247.

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Date of creation: Oct 1997
Date of revision: Dec 1997
Handle: RePEc:upf:upfgen:247

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Web page: http://www.econ.upf.edu/

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Keywords: Monetary policy; asymmetric effects; menu costs;

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Cited by:
  1. Randall E. Parker & Philip Rothman, 2004. "An Examination of the Asymmetric Effects of Money Supply Shocks in the Pre--World War I and Interwar Periods," Economic Inquiry, Western Economic Association International, vol. 42(1), pages 88-100, January.
  2. Juan J. Dolado & Ramón María-Dolores, 2001. "An empirical study of the cyclical effects of monetary policy in Spain (1977-1997)," Investigaciones Economicas, Fundación SEPI, vol. 25(1), pages 3-30, January.
  3. Dolado, Juan J & Maria-Dolores, Ramon, 2002. " Evaluating Changes in the Bank of Spain's Interest Rate Target: An Alternative Approach Using Marked Point Processes," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(2), pages 159-82, May.
  4. Annette Detken, 2002. "Nonlinearities in Swiss macroeconomic data," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(I), pages 39-60, March.
  5. Hess, Martin K., 2004. "Dynamic and asymmetric impacts of macroeconomic fundamentals on an integrated stock market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 14(5), pages 455-471, December.
  6. Claus Thustrup Kreiner, 2002. "Do the New Keynesian Microfoundations Rationalise Stabilisation Policy?," Economic Journal, Royal Economic Society, vol. 112(479), pages 384-401, April.
  7. Ramón María-Dolores, 2001. "Asimetrías en los efectos de la política monetaria en España (1977-1996)," Investigaciones Economicas, Fundación SEPI, vol. 25(2), pages 391-415, May.

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