Asymmetric monetary policy rules for the euro area and the US

Junior Maih, Falk Mazelis, Roberto Motto and Annukka Ristiniemi

No 2021/7, Working Paper from Norges Bank

Abstract: We analyse the implications of asymmetric monetary policy rules by estimating Markovswitching DSGE models for the euro area (EA) and the US. The estimations show that until mid-2014 the ECB's response to inflation was more forceful when inflation was above 2% than below 2%. Since then, the ECB's policy can be characterised as symmetric, and we quantify the macroeconomic implications of this policy change. We uncover asymmetries also in the Fed's policy, which has responded more strongly in times of crisis. We compute an optimal simple rule for the EA and the US in an environment with the effective lower bound and a low neutral real rate, and find that it prescribes a stronger response to inflation and the output gap when inflation is below target compared to when it is above target. We document its stabilisation properties had this optimal rule been implemented over the last two decades.

Keywords: inflation targeting; optimal monetary policy; effective lower bound; Bayesian estimation; Markov-switching DSGE (search for similar items in EconPapers)
JEL-codes: E31 E32 E52 E58 (search for similar items in EconPapers)
Pages: 36 pages
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (12)

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https://hdl.handle.net/11250/2783870

Related works:
Journal Article: Asymmetric monetary policy rules for the euro area and the US (2021)
Working Paper: Asymmetric monetary policy rules for the euro area and the US (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2021_7

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