When is Monetary Policy Effective?
Abstract
In this paper, we investigate a number of issues that have not been completely addressed in previous studies regarding the possible asymmetric effects of monetary policy. Overall, we interpret our results as weak evidence in favor of sticky-wage and sticky-price theories and strong evidence against credit-rationing theories. First, we find that models that allow for asymmetries with respect to contractionary/expansionary monetary policy fit the data better than models that allow for asymmetries associated with the state of the business cycle. Second, we find that contractionary monetary policy shocks have a much larger effect on output than expansionary policy shocks, although this result is somewhat sensitive to the econometric specification. Finally, we find that monetary policy shocks that occur during economic expansions appear to have about the same effect as shocks that occur during recessions; this result is robust to various econometric specifications.
ABSTRACT In this paper, we investigate a number of issues that have not been completely addressed in previous studies regarding the possible asymmetric effects ofmonetary policy. Overall, we interpret our results as weak evidence in favor ofsticky-wage and sticky-price theories and strong evidence against credit-rationing theories. First, we find that models that allow for asymmetries with respect to contractionary/expansionary monetary policy fit the data better than models that allow for asymmetries associated with the state ofthe business cycle. Second, we find that contractionary monetary policy shocks have a much larger effect on output than expansionary policy shocks, although this result is somewhat sensitive to the econometric specification. Finally, we find that monetary policy shocks that occur during economic expansions appear to have about the same effect as shocks that occur during recessions; this result is robust to various econometric specifications.
Cite this document
John Ammer and Allan D. Brunner (1995). When is Monetary Policy Effective? (IFDP 1995-520). Board of Governors of the Federal Reserve System, International Finance Discussion Papers. https://whenthefedspeaks.com/doc/ifdp_1995-520
@techreport{wtfs_ifdp_1995_520,
author = {John Ammer and Allan D. Brunner},
title = {When is Monetary Policy Effective?},
type = {International Finance Discussion Papers},
number = {1995-520},
institution = {Board of Governors of the Federal Reserve System},
year = {1995},
url = {https://whenthefedspeaks.com/doc/ifdp_1995-520},
abstract = {In this paper, we investigate a number of issues that have not been completely addressed in previous studies regarding the possible asymmetric effects of monetary policy. Overall, we interpret our results as weak evidence in favor of sticky-wage and sticky-price theories and strong evidence against credit-rationing theories. First, we find that models that allow for asymmetries with respect to contractionary/expansionary monetary policy fit the data better than models that allow for asymmetries associated with the state of the business cycle. Second, we find that contractionary monetary policy shocks have a much larger effect on output than expansionary policy shocks, although this result is somewhat sensitive to the econometric specification. Finally, we find that monetary policy shocks that occur during economic expansions appear to have about the same effect as shocks that occur during recessions; this result is robust to various econometric specifications.},
}