Are the Effects of Monetary Policy Asymmetric? |
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Authors: | René Garcia Huntley Schaller |
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Institution: | Universitéde Montréal, Montréal, QC H3C 3J7, Canada.;Carleton University, Ottawa, ON K1S 5B6, Canada. |
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Abstract: | By building on the Hamilton (1989) Markov switching model, we examine questions like: Does monetary policy have the same effect in expansions and recessions? Given that the economy is currently in a recession, does a fall in interest rates increase the probability of an expansion? Does monetary policy have an incremental effect on the growth rate within a given state, or does it only affect the economy if it is sufficiently strong to induce a state change (e.g., from recession to expansion)? As suggested by models with sticky prices or finance constraints, interest rate changes have larger effects during recessions. |
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