The Transmission Mechanism in Good and Bad Times

24 Pages Posted: 29 Oct 2015

See all articles by Haroon Mumtaz

Haroon Mumtaz

Queen Mary, University of London

Paolo Surico

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

Date Written: November 2015

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 endogenous regressors and state‐dependent parameters. An application to U.S. real activity and interest rate reveals pervasive asymmetries in the propagation mechanism across good and bad times. During periods when 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 strategies to model state‐dependent parameters.

Suggested Citation

Mumtaz, Haroon and Surico, Paolo, The Transmission Mechanism in Good and Bad Times (November 2015). International Economic Review, Vol. 56, Issue 4, pp. 1237-1260, 2015. Available at SSRN: https://ssrn.com/abstract=2682786 or http://dx.doi.org/10.1111/iere.12136

Haroon Mumtaz (Contact Author)

Queen Mary, University of London ( email )

Lincoln's Inn Fields
Mile End Rd.
London, E1 4NS
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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