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

Leonardo Ferreira

No 573, Working Papers Series from Central Bank of Brazil, Research Department

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.

Date: 2023-01
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