The Transmission Mechanism in Good and Bad Times

43 Pages Posted: 25 Sep 2014

See all articles by Haroon Mumtaz

Haroon Mumtaz

University of London - School of Sciences

Paolo Surico

London Business School - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: July 2014

Abstract

Does the transmission of economic policies and structural shocks vary with the state of the economy? We answer this question using a strategy based on quantile regressions, which account for both endogeneous regressors and state-dependent parameters. An application to U.S. real activity and interest rate reveals pervasive asymmetries in the propagation mechanism of economic disturbances across good and bad times. During periods in which real activity is above its conditional average, the estimates of the degree of forward-lookingness and interest rate semi-elasticity are significantly larger (in absolute value) than the estimates associated with below-average periods. Results are robust to alternative estimation strategies to model state-dependent parameters.

Keywords: asymmetric transmission mechanism, consumption, state-dependence

JEL Classification: E21, E32, E52

Suggested Citation

Mumtaz, Haroon and Surico, Paolo, The Transmission Mechanism in Good and Bad Times (July 2014). CEPR Discussion Paper No. DP10083. Available at SSRN: https://ssrn.com/abstract=2501557

Haroon Mumtaz (Contact Author)

University of London - School of Sciences ( email )

London, WC1E 7HX
United Kingdom

Paolo Surico

London Business School - Department of Economics ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

HOME PAGE: http://sites.google.com/site/paolosurico

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

HOME PAGE: http://sites.google.com/site/paolosurico

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