Working Paper: CEPR ID: DP10786
Authors: Silvana Tenreyro; Gregory Thwaites
Abstract: We estimate the impulse response of key US macro series to the monetary policy shocks identified by Romer and Romer (2004), allowing the response to depend flexibly on the state of the business cycle. We find strong evidence that the effects of monetary policy on real and nominal variables are more powerful in expansions than in recessions. The magnitude of the difference is particularly large in durables expenditure and business investment. The effect is not attributable to differences in the response of fiscal variables or the external finance premium. We find some evidence that contractionary policy shocks have more powerful effects than expansionary shocks. But contractionary shocks have not been more common in booms, so this asymmetry cannot explain our main finding.
Keywords: asymmetric effects of monetary policy; monetary policy
JEL Codes: E1; E31; E32; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary policy shocks (E39) | Output (Y10) |
| Monetary policy shocks (E39) | Inflation (E31) |
| Monetary policy shocks (E39) | Output during recessions (E39) |
| Monetary policy shocks (E39) | Inflation during recessions (E31) |
| Contractionary monetary policy shocks (E49) | Output (Y10) |
| Contractionary monetary policy shocks (E49) | Inflation (E31) |
| Fiscal policy (E62) | Counteract monetary policy during recessions (E52) |