Monetary asymmetries without (and with) price stickiness

Ivan Jaccard

No 2928, Working Paper Series from European Central Bank

Abstract: The evidence suggests that monetary policy transmission is asymmetric over the business cycle. Interacting financing frictions with a preference for liquidity provides an explanation for this fact. Our mechanism generates monetary asymmetries in a model that jointly reproduces a set of asset market and business cycle facts. Accounting for the joint dynamics of asset prices and business cycle fluctuations is key; in a variant of the model that is unable to produce realistic macro-finance implications, monetary asymmetries disappear. Our results suggest that asymmetries in the transmission mechanism critically depend on the macro-finance implications of monetary policy models, and that resorting to nonlinear techniques is not sufficient to detect monetary asymmetries. JEL Classification: E31, E44, E58

Keywords: asset pricing in DSGE models; money demand; nonlinear solution methods; stochastic discount factor; term premium (search for similar items in EconPapers)
Date: 2024-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
Note: 737337
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Related works:
Journal Article: MONETARY ASYMMETRIES WITHOUT (AND WITH) PRICE STICKINESS (2024)
Working Paper: Monetary Asymmetries without (and with) Price Stickiness (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20242928

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