Asymmetric Monetary Policy Effects in Germany

Vladimir Kuzin and Silke Tober

No 397, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: In a small structural model we find asymmetries in the effects of monetary policy in Germany depending on whether the economy is in an upswing or a downswing. These two different regimes are also identified using a Markov-switching model and the Kalman filter. Our results indicate that the effects of monetary policy are significantly higher in a downswing than in an upswing. It follows not only that monetary policy has to raise interest rates markedly if an economy is overheating but also that once a downturn is discernible, interest rates have to be lowered rapidly so as to prevent an overly large reaction of the real economy.

Keywords: Asymmetry; Monetary policy; Markov switching; Structural model (search for similar items in EconPapers)
JEL-codes: C32 C51 E32 E44 E5 (search for similar items in EconPapers)
Pages: 15 p.
Date: 2004
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (3)

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