The State-Dependent Effects of Monetary Policy

Hayk Kamalyan

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies state-dependent effects of monetary policy shocks. I first consider state-dependence of policy actions in a simple static model. The model predicts that effectiveness of monetary policy is positively related to the level of output. I next use an estimated DSGE model to quantitatively assess asymmetries in policy transmission mechanism. Consistent with the intuition of the simple model, I find that the effects of monetary policy on output are less powerful in recessions compared to expansions. By contrast, inflation is more sensitive in recessionary states. The latter implies that the aggregate price flexibility is varying across the business cycle. In particular, prices are more flexible when the economy is in a recessionary state. Conversely, prices become more rigid in expansionary states.

Keywords: Expansions; Recessions; State-Dependent Transmission Mechanism; New-Keynesian Model (search for similar items in EconPapers)
JEL-codes: E31 E32 E37 E52 E58 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:107489

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