Asymmetry in the Effects of Monetary and Government Spending Shocks: Contrasting Evidence and Implications

Magda Kandil

Economic Inquiry, 2002, vol. 40, issue 2, 288-313

Abstract: Using quarterly data for the United States, demand contraction exceeds expansion in the face of monetary and government spending shocks. Demand contraction in the face of government spending shocks, is absorbed in nominal wage and price deflation. The variability of government spending shocks decreases average wage and price inflation. In contrast, the upward flexibility of price appears in sharp contrast to its downward rigidity in the face of monetary shocks. Furthermore, output contraction is notably larger relative to expansion in the face of monetary shocks. Monetary variability accelerates average price inflation and decreases average output and real wage growth. Copyright 2002, Oxford University Press.

Date: 2002
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