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The Asymmetric Effects of Monetary Policy: Some Results from a Macroeconometric Model

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  • Arden, Richard, et al

Abstract

This paper offers evidence of the asymmetric effect of monetary policy on economic activity. First, asymmetric adjustment is captured in three macroeconomic relationships for investment, the consumer price deflator, inventories and house prices. These relationships are then embedded in a small macroeconometric model of the UK economy. Simulations on this model allow us to trace through the interactions of these asymmetries so that a monetary shock--measured by a change in interest rates--affects output and inflation in the short run in ways dependent both upon the sign of the shock and the initial state of the economy. A monetary easing has significantly larger effects on inflation when the economy is close to capacity compared with when it is in recession. These effects are captured by intrinsic asymmetries in the model, due to the use of the logarithm of interest rates and the logarithm of unemployment in the wage equation, as well as the asymmetries coming from the non-linearities which we have introduced explicitly. Copyright 2000 by Blackwell Publishers Ltd and The Victoria University of Manchester

Suggested Citation

  • Arden, Richard, et al, 2000. "The Asymmetric Effects of Monetary Policy: Some Results from a Macroeconometric Model," Manchester School, University of Manchester, vol. 68(4), pages 419-441, Special I.
  • Handle: RePEc:bla:manchs:v:68:y:2000:i:4:p:419-41
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    Cited by:

    1. Cook, S., 2004. "On the Detection of Business Cycles Asymmetry in 22 Countries, 1870-1994," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 4(1).
    2. Hammoudeh, Shawkat & Chen, Li-Hsueh & Yuan, Yuan, 2011. "Asymmetric convergence and risk shift in the TED spreads," The North American Journal of Economics and Finance, Elsevier, vol. 22(3), pages 277-297.
    3. Su, Chi Wei & Chang, Hsu Ling, 2010. "Asymmetric Adjustment in the Lending-Deposit Rate Spread: Evidence from Eastern European Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 165-175, July.
    4. Davide Furceri, 2004. "Does the EMU Need a Fiscal Transfer Mechanism?," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 73(3), pages 418-428.
    5. Steven Cook, 2003. "A Note on Business Cycle Non-Linearity in U. S. Consumption," Journal of Applied Economics, Universidad del CEMA, vol. 6, pages 247-253, November.
    6. Steven Cook, 2000. "An International Perspective on Asymmetries in Consumers' Expenditure," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 27(3), pages 283-293, September.
    7. Davide Furceri, 2002. "Risk-sharing e architettura istituzionale delle politiche di stabilizzazione nell'UME: aspetti metodologici e verifica empirica," Rivista di Politica Economica, SIPI Spa, vol. 92(6), pages 175-210, November-.
    8. Luisa Corrado & Sean Holly, 2006. "The Linearisation and Optimal Control of Large Non-Linear Rational Expectations Models by Persistent Excitation," Computational Economics, Springer;Society for Computational Economics, vol. 28(2), pages 139-153, September.
    9. Thompson, Mark A., 2006. "Asymmetric adjustment in the prime lending-deposit rate spread," Review of Financial Economics, Elsevier, vol. 15(4), pages 323-329.

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