Are the Effects of Monetary Policy Asymmetric?

René Garcia and Huntley Schaller

No 99-17, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: This paper focuses on whether monetary policy has asymmetric effects. By building on the Markov switching model introduced by Hamilton (1989), we examine questions like: Does monetary policy have the same effect regardless of the current phase of economic fluctuations? Given that the economy is currently in a recession, does a fall in interest rates increase the probability of an expansion? Does monetary policy have an incremental effect on the growth rate within a given state, or does it only affect the economy if it is sufficiently strong to induce a state change (e.g., from recession to expansion)? We find economically and statistically significant evidence of asymmetry. As suggested by models with sticky prices or finance constraints, interest rate changes have larger effects during recessions. Interest rates also have substantial effects on the probability of a state switch.

Keywords: monetary policy; asymmetries; Markov switching models (search for similar items in EconPapers)
JEL-codes: C22 E52 (search for similar items in EconPapers)
Pages: 27 pages
Date: 1999-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published: – revised version in Economic Inquiry, Vol. 40, No. 1 (January 2002), pp. 102–119

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Related works:
Journal Article: Are the Effects of Monetary Policy Asymmetric? (2002)
Working Paper: Are the Effects of Monetary Policy Asymmetric? (1995)
Working Paper: Are the Effects of Monetary Policy Asymmetric? (1995)
Working Paper: Are the Effects of Monetary Policy Asymmetric? (1995)
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Persistent link: https://EconPapers.repec.org/RePEc:car:carecp:99-17

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