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Are the Effects of Monetary Policy Asymmetric?

  • RenÈ Garcia

By building on the Hamilton (1989) Markov switching model, we examine questions like: Does monetary policy have the same effect in expansions and recessions? Given that the economy is currently in a recession, does a fall in interest rates increase the probability of an expansion? Does monetary policy have an incremental effect on the growth rate within a given state, or does it only affect the economy if it is sufficiently strong to induce a state change (e.g., from recession to expansion)? As suggested by models with sticky prices or finance constraints, interest rate changes have larger effects during recessions. Copyright 2002, Oxford University Press.

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Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 40 (2002)
Issue (Month): 1 (January)
Pages: 102-119

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Handle: RePEc:oup:ecinqu:v:40:y:2002:i:1:p:102-119
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