Why are the Effects of Money-Supply Shocks Asymmetric? Evidence from Prices, Consumption, and Investment

Posted: 29 Apr 1999

See all articles by Georgios Karras

Georgios Karras

University of Illinois at Chicago - Department of Economics

Houston H. Stokes

University of Illinois at Chicago - Department of Economics

Abstract

This paper investigates why the effects of money on output are asymmetric. We show that Cover's (1992) methodology is a special case of a more general model which enables us to distinguish between two sets of theories consistent with the output asymmetries: a convex aggregate supply, and a pushing-on-a-string view. We find that the effects of money on prices are symmetric, which is consistent with both sets of theories being operative at once. We also show that consumption responds symmetrically to money, whereas the response of fixed investment is characterized by asymmetries very similar to those that affect output. Finally, we find that the asymmetries in the effects of money supply shocks are intensified by increases in the rate of inflation.

JEL Classification: E51, E52

Suggested Citation

Karras, Georgios and Stokes, Houston H., Why are the Effects of Money-Supply Shocks Asymmetric? Evidence from Prices, Consumption, and Investment. Available at SSRN: https://ssrn.com/abstract=160552

Georgios Karras (Contact Author)

University of Illinois at Chicago - Department of Economics ( email )

725 University Hall (UH)
Chicago, IL 60607-7121
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HOME PAGE: http://www.uic.edu/~gkarras/

Houston H. Stokes

University of Illinois at Chicago - Department of Economics ( email )

725 University Hall (UH)
Chicago, IL 60607-7121
United States
312-996-2683 (Phone)
312-996-3344 (Fax)

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