Working Paper: CEPR ID: DP15005
Authors: Mario Forni; Davide Debortoli; Luca Gambetti; Luca Sala
Abstract: Monetary policy easing and tightening have asymmetric effects: a policy easing has large effects on prices but small effects on real activity variables. The opposite is found for a policy tightening: large real effects but small effects on prices. Nonlinearities are estimated using a new and simple procedure based on linear Strutural Vector Autoregressions with exogenous variables (SVARX). We rationalize the result through the lens of a simple model with downward nominal wage rigidities.
Keywords: monetary policy shocks; nonlinear effects; structural VAR models
JEL Codes: C32; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| downward nominal wage rigidities (J31) | understanding asymmetries in effects of monetary policy shocks (E19) |
| monetary policy shocks (E39) | asymmetric effects on prices (P22) |
| monetary policy shocks (E39) | asymmetric effects on real activity variables (F41) |
| policy easing (E52) | large effects on prices (E30) |
| policy easing (E52) | small effects on real activity variables (E44) |
| policy tightening (E63) | large effects on real activity variables (E44) |
| policy tightening (E63) | small effects on prices (D41) |