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Is there an asymmetric effect of monetary policy over time? A Bayesian analysis using Austrian data

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  • Sylvia Kaufmann

    () (Oesterreichische Nationalbank, Economic Analysis Division, P.O. Box 61, A-1011 Vienna, and University of Vienna, Department of Economics, Hohenstaufengasse 9, A-1010 Vienna)

Abstract

The present paper assesses whether monetary policy effects are asymmetric over the business cycle by estimating a univariate model for GDP including additionally the first difference of the 3-month Austrian interest rate as a measure for monetary policy. The asymmetry of the effects is captured by allowing for state-dependent parameters where the latent state variable follows a Markov switching process. The model is estimated within a Bayesian framework using Markov Chain Monte Carlo simulation methods. Model selection and specification tests are performed by means of marginal likelihood. The results document significant negative effects of monetary policy during periods of below-average growth, while the effect seems insignificant during periods of normal or above-average growth. These results corroborate those derived in theoretical models assuming price rigidities and implying a convex supply curve. Additionally, the concern of using appropriate state-identifying restrictions is raised to obtain an unbiased posterior inference. Finally, the analysis concludes by assessing the robustness of the results with respect to alternative measures of monetary policy.

Suggested Citation

  • Sylvia Kaufmann, 2002. "Is there an asymmetric effect of monetary policy over time? A Bayesian analysis using Austrian data," Empirical Economics, Springer, vol. 27(2), pages 277-297.
    • Handle: RePEc:spr:empeco:v:27:y:2002:i:2:p:277-297
    Note: Received: December 2000/Final Version Received: May 2001
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    Cited by:

    1. Zakaria Babutsidze, 2012. "Asymmetric (S,s) Pricing: Implications for Monetary Policy," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 177-204.
    2. Mustafa Caglayan & Ozge Kandemir Kocaaslan & Kostas Mouratidis, 2017. "Financial Depth and the Asymmetric Impact of Monetary Policy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(6), pages 1195-1218, December.
    3. Jarko Fidrmuc & Roman Horváth & Eva Horváthová, 2010. "Corporate Interest Rates and the Financial Accelerator in the Czech Republic," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(4), pages 41-54, January.
    4. Zare , Roohollah, 2015. "Asymmetric Effects of Monetary Policy and Business Cycles in Iran using Markov-switching Models," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 10(4), pages 125-142, October.
    5. Sylvia Kaufmann & Maria Teresa Valderrama, 2004. "Modeling Credit Aggregates," Working Papers 90, Oesterreichische Nationalbank (Austrian Central Bank).
    6. Castro, Vitor, 2008. "Are Central Banks following a linear or nonlinear (augmented) Taylor rule?," Economic Research Papers 269883, University of Warwick - Department of Economics.
    7. Pao-Lin Tien & Tara M. Sinclair & Edward N. Gamber, 2015. "Do Fed Forecast Errors Matter?," Wesleyan Economics Working Papers 2015-004, Wesleyan University, Department of Economics.
    8. Renée Fry-Mckibbin & Jasmine Zheng, 2016. "Effects of the US monetary policy shocks during financial crises – a threshold vector autoregression approach," Applied Economics, Taylor & Francis Journals, vol. 48(59), pages 5802-5823, December.
    9. Alvaro Aguiar & Manuel Martins, 2005. "Testing the significance and the non-linearity of the Phillips trade-off in the Euro Area," Empirical Economics, Springer, vol. 30(3), pages 665-691, October.
    10. Ming-Yuan Leon Li, 2009. "Reexamining asymmetric effects of monetary and government spending policies on economic growth using quantile regression," Journal of Developing Areas, Tennessee State University, College of Business, vol. 43(1), pages 137-154, September.
    11. Toni Beutler & Matthias Gubler & Simona Hauri & Sylvia Kaufmann, 2020. "Bank lending in Switzerland: Capturing cross-sectional heterogeneity and asymmetry over time," Working Papers 20.04, Swiss National Bank, Study Center Gerzensee.
    12. Rather, Sartaj Rasool & Durai, S. Raja Sethu & Ramachandran, M., 2015. "Asymmetric price adjustment – evidence for India," The Journal of Economic Asymmetries, Elsevier, vol. 12(2), pages 73-79.
    13. Babutsidze, Zakaria, 2006. "(S,s) Pricing: Does the Heterogeneity Wipe Out the Asymmetry on Micro Level?," MERIT Working Papers 2006-033, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    14. Chuku Chuku & Paul Middleditch, 2020. "Characterizing Monetary and Fiscal Policy Rules and Interactions when Commodity Prices Matter," Manchester School, University of Manchester, vol. 88(3), pages 373-404, June.
    15. Vinícius dos Santos Cerqueira & Márcio Bruno Ribeiro & Thiago Sevilhano Martinez, 2011. "Propagação Assimétrica de Choques Monetários na Economia Brasileira: Evidências com Base em um Modelo Vetorial não Linear de Transição Suave," Discussion Papers 1639, Instituto de Pesquisa Econômica Aplicada - IPEA.
    16. Mustafa Caglayan & Ozge Kandemir Kocaaslan & Kostas Mouratidis, 2013. "The Role of Financial Depth on the Asymmetric Impact of Monetary Policy," Working Papers 2013007, The University of Sheffield, Department of Economics.
    17. Kwangyong Park, 2019. "Uncertainty, Attention Allocation and Monetary Policy Asymmetry," Working Papers 2019-5, Economic Research Institute, Bank of Korea.
    18. Lo, Ming Chien & Piger, Jeremy, 2005. "Is the Response of Output to Monetary Policy Asymmetric? Evidence from a Regime-Switching Coefficients Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 865-886, October.
    19. Fredj Jawadi & Sushanta K. Mallick & Ricardo M. Sousa, 2011. "Monetary Policy Rules in the BRICS: How Important is Nonlinearity?," NIPE Working Papers 18/2011, NIPE - Universidade do Minho.
    20. Gross, Marco & Binder, Michael, 2013. "Regime-switching global vector autoregressive models," Working Paper Series 1569, European Central Bank.
    21. Kuang‐Liang Chang & Chi‐Wei He, 2010. "Does The Magnitude Of The Effect Of Inflation Uncertainty On Output Growth Depend On The Level Of Inflation?," Manchester School, University of Manchester, vol. 78(2), pages 126-148, March.
    22. Sylvia Kaufmann, 2003. "The business cycle of European countries Bayesian clustering of country - individual IP growth series," Working Papers 83, Oesterreichische Nationalbank (Austrian Central Bank).

    More about this item

    Keywords

    Asymmetry; monetary policy; Markov switching; Markov Chain Monte Carlo; marginal likelihood;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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