Asymmetric Effects of Monetary Policy in the Us: Positive vs. Negative or Big vs. Small?

Universitat Pompeu Fabra Economic WP 247

Posted: 13 Mar 1998

See all articles by Morten O. Ravn

Morten O. Ravn

European University Institute - Economics Department (ECO); London Business School - Department of Economics; University of Southampton; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Martín Sola

Universidad Torcuato Di Tella; University of London - Economics, Mathematics and Statistics

Abstract

This paper reconsiders the empirical evidence on the asymmetric output effects of monetary policy. Asymmetric effects is a common feature of many theoretical models, and there are many different versions of such asymmetries. We concentrate on the distinctions between positive and negative money-supply changes, big and small changes in money-supply, and possible combinations of the two asymmetries. Earlier research has found empirical evidence in favor of the former of these in US data. Using M1 as the monetary variable we find evidence in favor of neutrality of big shocks and non-neutrality of small shocks. The results may, however, be affected by structural instability of M1 demand. Thus, we substitute M1 with the federal funds rate. In these data we find that only small negative shocks affect real aggregate activity. The results are interpreted in terms of menu-cost models.

JEL Classification: E0, E32, C32

Suggested Citation

Ravn, Morten O. and Sola, Martín, Asymmetric Effects of Monetary Policy in the Us: Positive vs. Negative or Big vs. Small?. Universitat Pompeu Fabra Economic WP 247. Available at SSRN: https://ssrn.com/abstract=65008

Morten O. Ravn (Contact Author)

European University Institute - Economics Department (ECO) ( email )

Villa San Paolo
Via della Piazzuola 43
50133 Florence
Italy

London Business School - Department of Economics ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7262 5050 ext. 3717 (Phone)
+44 20 7402 0718 (Fax)

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom
+44 1703 593996 (Phone)
+44 1703 593858 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Martín Sola

Universidad Torcuato Di Tella ( email )

Minones 2159
1428 Buenos Aires, 1428
Argentina
5411 4784 0080 (Phone)
5411 4784 9807 (Fax)

University of London - Economics, Mathematics and Statistics ( email )

Malet Street
London, WC1E 7HX
United Kingdom
+44 20 7631 6411 (Phone)
+44 20 7631 6416 (Fax)

HOME PAGE: http://www.econ.bbk.ac.uk/faculty/sola/

Register to save articles to
your library

Register

Paper statistics

Abstract Views
668
PlumX Metrics