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Asymmetric Effects of Monetary Policy: Evidence from the Yield Curve

Recent empirical studies examining the asymmetric effects of monetary shocks on economic activity do not systematically control for the non-monetary sources of fluctuations as well as the endogenous component of monetary policy. The evidence of asymmetry could simply reflect the failure to control for these omitted factors. In this paper, we reconsider the asymmetric effects of monetary shocks in the context of a small open economy using information from the yield curve to measure the stance of domestic monetary policy, while allowing both real and monetary foreign shocks to have asymmetric effects on output. Our principal finding is that while controlling for foreign factors dampens the asymmetry in the effects of exogenous domestic monetary shocks, there is nonetheless strong evidence of asymmetry when the effects of the exogenous and systematic components of the yield spread are considered jointly. We find no evidence of asymmetry in the effects of real factors. Des études empiriques récentes qui ont considéré les effets asymétriques des chocs monétaires sur l'activité économique n'ont pas contrôlé ni pour des sources non monétaires des fluctuations, ni pour la composante endogène de la politique monétaire. Les éléments d'évidence empirique en faveur de l'asymétrie pourraient simplement refléter l'omission de certains de ces autres facteurs. Nous reconsidérons ici les effets asymétriques des chocs monétaires dans le contexte d'une petite économie ouverte en utilisant l'information de la courbe de rendements pour mesurer l'état de la politique monétaire domestique, tout en permettant à des facteurs réels et monétaires extérieurs d'influencer asymétriquement la production. Notre principal résultat est de trouver une forte évidence d'asymétrie des chocs monétaires lorsque les effets des composantes exogène et systématique de la courbe de rendement sont pris en compte conjointement, même en contrôlant pour les facteurs externes. Cependant, nos résultats empiriques ne supportent pas l'existence d'effets asymétriques associés aux facteurs réels.

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Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 42.

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Length: 30 pages
Date of creation: Aug 1996
Date of revision:
Handle: RePEc:cre:crefwp:42
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  10. J. Bradford De Long & Lawrence H. Summers, . "How Does Macroeconomic Policy Matter?," J. Bradford De Long's Working Papers _130, University of California at Berkeley, Economics Department.
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  25. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
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