The Asymmetric Effects of Deflationary Monetary Shocks PDF Download

Author: Arthur Ernest Gandolfi
Publisher:
ISBN:
Category : Deflation
Languages : en
Pages : 122

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Author: Tiff Macklem
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Recent empirical studies examining the asymmetric effects of monetary shocks on economic activity do not systematically control for the non-monetary sources of fluctuations as well as the endogenous component of monetary policy. The evidence of asymmetry could simply reflect the failure to control for these omitted factors. In this paper, we reconsider the asymmetric effects of monetary shocks in the context of a small open economy using information from the yield curve to measure the stance of domestic monetary policy, while allowing both real and monetary foreign shocks to have asymmetric effects on output. Our principal finding is that while controlling for foreign factors dampens the asymmetry in the effects of exogenous domestic monetary shocks, there is nonetheless strong evidence of asymmetry when the effects of the exogenous and systematic components of the yield spread are considered jointly. We find no evidence of asymmetry in the effects of real factors.

Author: Richard Arden
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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This paper offers evidence of the asymmetric effect of monetary policy on economic activity. First, asymmetric adjustment is captured in three macroeconomic relationships for investment, the consumer price deflator, inventories and house prices. These relationships are then embedded in a small macroeconometric model of the UK economy. Simulations on this model allow us to trace through the interactions of these asymmetries so that a monetary shock, measured by a change in interest rates, affects output and inflation in the short run in ways dependent both upon the sign of the shock and the initial state of the economy. A monetary easing has significantly larger effects on inflation when the economy is close to capacity compared with when it is in recession. These effects are captured by intrinsic asymmetries in the model, due to the use of the logarithm of interest rates and the logarithm of unemployment in the wage equation, as well as the asymmetries coming from the non-linearities which we have introduced explicitly.

Author: Magda Kandil
Publisher: International Monetary Fund
ISBN:
Category : Foreign exchange rates
Languages : en
Pages : 38

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Author: Pik-ki Lai
Publisher:
ISBN:
Category : Keynesian economics
Languages : en
Pages : 372

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Author: Douglas Laxton
Publisher:
ISBN:
Category : Deflation (Finance)
Languages : en
Pages : 52

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Book Description
The paper considers the macroeconomic transmission of demand and supply shocks in an open economy under alternative assumptions on whether the zero interest floor (ZIF) is binding. It uses a two-country general-equilibrium simulation model calibrated to the Japanese economy vis-a-vis the rest of the world. Negative demand shocks have more prolonged and startling effects on the economy when the ZIF is binding than when it is not binding. Positive supply shocks can actually extend the period of time over which the ZIF may be expected to bind. More open economies hit the ZIF for a shorter period of time, and with less harmful effects. Deflationary supply shocks have different implications according to whether they are concentrated in the tradables rather than the nontradables sector. Price-level-path targeting rules are likely to provide better guidelines for monetary policy in a deflationary environment, and have desirable properties in normal times when the ZIF is not binding.

Author: The Asymmetric Effects of Financial Frictions
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Economic variables are known to move asymmetrically over the business cycle: quickly and sharply during crises, but slowly and gradually during recoveries. Not known is the fact that this asymmetry is stronger in countries with less-developed financial systems. This new fact is documented using cross-country data on loan interest rates, investment, and output. The fact is then explained using a learning model with endogenous flows of information about economic conditions. Asymmetry is shown to be stronger in less-developed countries because these countries have greater financial frictions, which are captured in the model by higher monitoring and bankruptcy costs. These greater frictions magnify the crisis reactions of lending rates and economic activity to shocks and then delay their recovery by restricting the generation of information after the crisis. Empirical evidence and a quantitative exploration of the model show that this explanation is consistent with the data.

Author: Victoria Dobrynskaya
Publisher:
ISBN:
Category :
Languages : en
Pages : 31

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There is convincing empirical evidence that prices are asymmetrically rigid in response to positive and negative demand shocks. Such asymmetry should play an important role in monetary policy. I analyze the implications of the asymmetric price rigidity for the optimal monetary policy in a microfounded New Keynesian model of a small open economy. I find that inflationary and deflationary shocks should be treated asymmetrically in the presence of asymmetric price rigidity but that the asymmetry depends on the local price rigidity and the social preferences. In particular, if prices are sufficiently flexible and/or the output gap is not very important (e.g., if there is strict inflation targeting), then the monetary policy should respond more to inflationary shocks than to deflationary ones of the same size. In the opposite case, however, the optimal asymmetry is reversed. This model attempts to explain in terms of the social preferences why different directions in the monetary policy asymmetry are observed in different countries, and provide normative prescriptions for the design of monetary policy in the presence of asymmetric price rigidity.

Author: Chris Schleicher
Publisher:
ISBN:
Category :
Languages : en
Pages : 134

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Author: Guillermo Ordoñez
Publisher:
ISBN:
Category : Economics
Languages : en
Pages : 0

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Book Description
Abstract: Economic variables are known to move asymmetrically over the business cycle: quickly and sharply during crises, but slowly and gradually during recoveries. Not known is the fact that this asymmetry is stronger in countries with less-developed financial systems. This new fact is documented using cross-country data on loan interest rates, investment, and output. The fact is then explained using a learning model with endogenous flows of information about economic conditions. Asymmetry is shown to be stronger in less-developed countries because these countries have greater financial frictions, which are captured in the model by higher monitoring and bankruptcy costs. These greater frictions magnify the crisis reactions of lending rates and economic activity to shocks and then delay their recovery by restricting the generation of information after the crisis. Empirical evidence and a quantitative exploration of the model show that this explanation is consistent with the data