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Is there an asymmetric effect on monetary policy over time? A bayesian analysis using Austrian data

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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 Marov 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 w.r.t. alternative measures of monetary policy.

Suggested Citation

  • Sylvia Kaufmann, 2001. "Is there an asymmetric effect on monetary policy over time? A bayesian analysis using Austrian data," Working Papers 45, Oesterreichische Nationalbank (Austrian Central Bank).
  • Handle: RePEc:onb:oenbwp:45
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    1. Hansen, Bruce E, 1992. "The Likelihood Ratio Test under Nonstandard Conditions: Testing the Markov Switching Model of GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages 61-82, Suppl. De.
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    Citations

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    Cited by:

    1. 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).
    2. 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.
    3. Gross, Marco & Binder, Michael, 2013. "Regime-switching global vector autoregressive models," Working Paper Series 1569, European 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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