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Monetary Policy Surprises, Financial Conditions, and the String Theory Revisited

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  • Leonardo Nogueira Ferreira

Abstract

Many are the attempts, by economists, at testing whether it is true that "you can't push on a string", reputedly John Maynard Keynes's words. Exploiting high-frequency surprises, this paper explores whether the responses of standard macroeconomic variables and financial conditions to monetary shocks are asymmetric in recent US and euro area samples. To this end, I estimate non-linear local projections using a Bayesian version of the procedure proposed by Lusompa (2021). Overall, results show robust evidence of asymmetry, with industrial production, unemployment, and financial conditions responding more strongly to monetary tightenings while CPI responds more weakly.

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  • Leonardo Nogueira Ferreira, 2023. "Monetary Policy Surprises, Financial Conditions, and the String Theory Revisited," Working Papers Series 573, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:573
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