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

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

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Author: Morten O. Ravn
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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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.

Author: Mr.Douglas Laxton
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 56

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This paper examines the evidence on asymmetries in the effects of activity on inflation. Data for the G-7 countries are found to strongly support the view that the inflation-activity relationship is nonlinear, with high levels of activity raising inflation by more than low levels decrease it. In the face of such asymmetries, the average level of output in an economy subject to demand shocks will be below the level of output at which there is no tendency for inflation to rise or fall, contrary to the implications of linear models. One implication of these results is that policymakers can raise the average level of output over time by responding promptly to demand shocks, thus reducing the variance of output around trend.

Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1498344062
Category : Business & Economics
Languages : en
Pages : 74

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Over the past two decades, many low- and lower-middle income countries (LLMICs) have improved control over fiscal policy, liberalized and deepened financial markets, and stabilized inflation at moderate levels. Monetary policy frameworks that have helped achieve these ends are being challenged by continued financial development and increased exposure to global capital markets. Many policymakers aspire to move beyond the basics of stability to implement monetary policy frameworks that better anchor inflation and promote macroeconomic stability and growth. Many of these LLMICs are thus considering and implementing improvements to their monetary policy frameworks. The recent successes of some LLMICs and the experiences of emerging and advanced economies, both early in their policy modernization process and following the global financial crisis, are valuable in identifying desirable features of such frameworks. This paper draws on those lessons to provide guidance on key elements of effective monetary policy frameworks for LLMICs.

Author: Stuart Sayer
Publisher: John Wiley & Sons
ISBN: 1405129115
Category : Business & Economics
Languages : en
Pages : 292

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Book Description
This collection of survey articles sheds light on crucial questions in the field of monetary, financial and macroeconomic policy. Applies rigorous economic theory and empirical analysis to important practical policy issues. Considers the role of the financial sector in economic development. Looks at why financial crises occur and how they can be avoided. Discusses the relationship between macroeconomic adjustment and poverty. Asks if low-inflation rate regimes are at risk from the ‘zero bound’ to nominal interest rates. Provides accessible overviews of recent research into these questions.

Author: Alan S. Blinder
Publisher: Elsevier
ISBN: 1483264564
Category : Business & Economics
Languages : en
Pages : 244

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Book Description
Economic Policy and the Great Stagflation discusses the national economic policy and economics as a policy-oriented science. This book summarizes what economists do and do not know about the inflation and recession that affected the U.S. economy during the years of the Great Stagflation in the mid-1970s. The topics discussed include the basic concepts of stagflation, turbulent economic history of 1971-1976, anatomy of the great recession and inflation, and legacy of the Great Stagflation. The relation of wage-price controls, fiscal policy, and monetary policy to the Great Stagflation is also elaborated. This publication is beneficial to economists and students researching on the history of the Great Stagflation and policy errors of the 1970s.