Asymmetric Monetary Policy Effects in Germany
In a small structural model we find asymmetries in the effects of monetary policy in Germany depending on whether the economy is in an upswing or a downswing. These two different regimes are also identified using a Markov-switching model and the Kalman filter. Our results indicate that the effects of monetary policy are significantly higher in a downswing than in an upswing. It follows not only that monetary policy has to raise interest rates markedly if an economy is overheating but also that once a downturn is discernible, interest rates have to be lowered rapidly so as to prevent an overly large reaction of the real economy.
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"Asymmetric Price Adjustment and Economic Fluctuations,"
Harvard Institute of Economic Research Working Papers
1602, Harvard - Institute of Economic Research.
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- Ming Chien Lo & Jeremy Piger, 2003.
"Is the response of output to monetary policy asymmetric? evidence from a regime-switching coefficients model,"
2001-022, Federal Reserve Bank of St. Louis.
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- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
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