Are the Output Effects of Monetary Policy Asymmetric? Evidence from a Sample of European Countries

Georgios Karras

Oxford Bulletin of Economics and Statistics, 1996, vol. 58, issue 2, 267-78

Abstract: This paper examines whether the effects of monetary policy on output in Europe are asymmetric. Data from the 1953-90 period are used to identify money-supply shocks and their effects on output for a panel of 18 European countries. Many different specifications and estimation methods strongly support asymmetry: negative money-supply shocks are shown to have a statistically significant effect on output, whereas the effect of positive shocks is statistically insignificant. A similar asymmetry governs the output effects of interest rate changes. The sources of these asymmetries are traced to similar behavior for consumption and investment. These findings imply that positive money-supply shocks may be an ineffective anti-recession policy, and more generally, that the monetary component of the optimal stabilization policy should be less activist than generally thought. Copyright 1996 by Blackwell Publishing Ltd

Date: 1996
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