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An empirical study of the cyclical effects of monetary policy in Spain (1977-1997)

  • Juan J. Dolado

    (Universidad Carlos III de Madrid)

  • Ramón María-Dolores

    (Universidad Carlos III de Madrid y Universidad de Murcia)

In this paper, we provide empirical evidence for the Spanish economy, over the period 1977-97, on whether monetary policy shocks have had different effects on real output growth depending on the state of the business cycle. To do so, we adopt an extension of Hamilton's (1989) Markov Switching Model, as recently proposed by García and Schaller (1995), where shocks to an interest rate policy rule followed by the Bank of Spain are allowed to affect both the growth rate of output and the transition probabilities of moving from one phase to another. The analysis is carried out both at the aggregate level and the sectorial level, with the aim of addressing the following questions: (i) Does monetary policy have the same effect regardless of the current phase of economic fluctuations?, (ii) Does monetary policy only have an incremental effect on output growth rate within a given state or does it also affect the probability of state switch, and, (iii) How do the aggregate and sectorial results compare?

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Article provided by Fundación SEPI in its journal Investigaciones Economicas.

Volume (Year): 25 (2001)
Issue (Month): 1 (January)
Pages: 3-30

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Handle: RePEc:iec:inveco:v:25:y:2001:i:1:p:3-30
Contact details of provider: Postal: Investigaciones Economicas Fundación SEPI Quintana, 2 (planta 3) 28008 Madrid Spain
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  1. Karras, Georgios, 1996. "Are the Output Effects of Monetary Policy Asymmetric? Evidence from a Sample of European Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(2), pages 267-78, May.
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  5. Mark Gertler & Simon Gilchrist, 1991. "Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms," NBER Working Papers 3892, National Bureau of Economic Research, Inc.
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  16. Etsuro Shioji, 1997. "Spanish monetary policy: A structural VAR analysis," Economics Working Papers 215, Department of Economics and Business, Universitat Pompeu Fabra.
  17. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
  18. repec:tpr:qjecon:v:107:y:1992:i:4:p:1261-82 is not listed on IDEAS
  19. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  20. Morten O. Ravn & Martín Solà, 1997. "Asymmetric effects of monetary policy in the US: Positive vs. negative or big vs. small?," Economics Working Papers 247, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 1997.
  21. Hamilton, James D., 1987. "Monetary factors in the great depression," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 145-169, March.
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