Pushing On a String: US Monetary Policy is Less Powerful in Recessions

Silvana Tenreyro and Gregory Thwaites

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We estimate the impulse response of key US macro series to the monetary policy shocks identified by Romer and Romer (2004), allowing the response to depend flexibly on the state of the business cycle. We find strong evidence that the effects of monetary policy on real and nominal variables are more powerful in expansions than in recessions. The magnitude of the difference is particularly large in durables expenditure and business investment. The effect is not attributable to differences in the response of fiscal variables or the external finance premium. We find some evidence that contractionary policy shocks have more powerful effects than expansionary shocks. But contractionary shocks have not been more common in booms, so this asymmetry cannot explain our main finding.

Keywords: asymmetric effects of monetary policy; transmission mechanism; recession; durable goods; local projection methods (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Date: 2013-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (26)

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https://cep.lse.ac.uk/pubs/download/dp1218.pdf (application/pdf)

Related works:
Journal Article: Pushing on a String: US Monetary Policy Is Less Powerful in Recessions (2016)
Working Paper: Pushing on a string: US monetary policy is less powerful in recessions (2016)
Working Paper: Pushing on a String: US Monetary Policy is Less Powerful in Recessions (2015)
Working Paper: Pushing on a string: US monetary policy is less powerful in recessions (2013)
Working Paper: Pushing on a string: US monetary policy is less powerful in recessions (2013)
Working Paper: Pushing on a string: US monetary policy is less powerful in recessions (2013)
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