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Are the Effects of Monetary Policy Asymmetric?

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  • RenÈ Garcia

Abstract

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.

Suggested Citation

  • RenÈ Garcia, 2002. "Are the Effects of Monetary Policy Asymmetric?," Economic Inquiry, Western Economic Association International, vol. 40(1), pages 102-119, January.
    • Handle: RePEc:oup:ecinqu:v:40:y:2002:i:1:p:102-119
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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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