The Role of Financial Depth on the Asymmetric Impact of Monetary Policy

Mustafa Caglayan (), Ozge Kandemir Kocaaslan and Kostas Mouratidis
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Ozge Kandemir Kocaaslan: Department of Economics, Hacettepe University, Ankara, Turkey

No 2013007, Working Papers from The University of Sheffield, Department of Economics

Abstract: This paper investigates the role of financial markets in evaluating the asymmetric impact of monetary policy on real output over the business cycle. We use quarterly US data which cover 1971:q1-2011:q4 and implement an instrumental variables Markov regime switching methodology to account for the endogeneity problem. Our investigation shows that monetary policy has a significant impact on output growth during recessions. More interestingly, we find that financial depth plays an important role as it dampens the effects of monetary policy in recessions. The results are robust compared to an alternative financial depth measure and a different sample period.

Keywords: Output growth; asymmetric effects; monetary policy; financial depth; Markov switching; instrumental variables (search for similar items in EconPapers)
JEL-codes: E32 E52 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2013-05
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.shef.ac.uk/economics/research/serps/articles/2013_007.html Updated version, February 2014 (application/pdf)

Related works:
Working Paper: The Role of Financial Depth on The Asymmetric Impact of Monetary Policy (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:shf:wpaper:2013007

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