Working Paper: CEPR ID: DP2441
Authors: Juan J. Dolado; Ramn Maradolores; Manuel Naveira
Abstract: This paper investigates the possible existence of asymmetric effects in the response of four central banks to inflation and output gaps as regards the 'sign' and 'size' of those gaps. The evidence obtained both through the estimation of a generalized Taylor rule and an ordered probit model points out that most central banks show a stronger reaction to inflation upswings relative to downswings. However, except for the Federal Reserve, no asymmetric behaviour with respect to the output gap is found.
Keywords: Taylor rules; asymmetries; ordered probit models
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inflation above target (E31) | Interest rate increase (E43) |
| Inflation below target (E31) | Interest rate response (E43) |
| Output gap fluctuations (E39) | Central bank policy adjustments (E52) |