An Examination of the Asymmetric Effects of Money Supply Shocks in the Pre–World War I and Interwar Periods

Parker, Randall E.; Rothman, Philip

doi:10.1093/ei/cbh046

Cited by 12 publications

(4 citation statements)

References 30 publications

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“…Karras (1996) analyzes data for a number of European countries and finds strong evidence in favor of the traditional Keynesian asymmetry hypothesis. Parker and Rothman (2000) re-examine Cover's (1992) evidence for the preWorld War I and the interwar periods. They find that the type of asymmetry documented by Cover existed only during the latter stage of the Great Depression.…”

Section: Asymmetric Effects Of Monetary Policy In the United Statesmentioning

confidence: 99%

Asymmetric Effects of Monetary Policy in the United States

Ravn¹,

Solà²

2004

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We also consider asymmetric effects that are implied by models with menu costs (see, among others, Romer, 1990, andMankiw, 1994). In static (deterministic) settings, standard menu-cost models imply that "big" monetary policy shocks are neutral because firms would find it optimal to adjust nominal prices, while "small" monetary policy shocks would have real effects because keeping nominal prices fixed is associated with only a second-order cost. In other words, the firms have to decide-before the monetary policy shock is observed-whether to index their prices (at the cost of paying the menu cost) or not. Firms will choose indexation (which implies neutrality) only if the variance of monetary policy shocks is high. We extend the analysis by assuming that the monetary policy process can change between having a "high" variance and a "low" variance. This approach allows for identifying periods of neutrality and periods of non-neutrality.Finally, we consider the case in which only small Asymmetric Effects of Monetary Policy in the United StatesMorten O. Ravn and Martin Sola T his paper tests for the presence of asymmetric effects of monetary policy on aggregate activity using U.S. postwar quarterly data. We are interested in three types of asymmetry: (i) whether negative and positive monetary policy shocks have different effects on output; (ii) whether big or small shocks have different effects; and/or (iii) whether low-variance, negative shocks have asymmetric effects on output. We discuss the three possibilities below and explain under which conditions these asymmetries might take place. 1 To date, the empirical literature has focused on a particular asymmetry that we call "the traditional Keynesian asymmetry," which states that positive monetary policy shocks have smaller real effects than negative monetary policy shocks-or, in a more extreme form, that only the latter shocks have real effects. This asymmetry can be derived under the assumption of either downward (upward) sticky (flexible) nominal wages or sticky prices together with rationing of demand. 2,3 S E P T E M B E R / O C TO B E R 2 0 0 4 4 1 1 Other types of asymmetric effects have been explored by Garcia and Schaller (1995), who examine whether monetary policy affects output differently in different phases of the business cycle, and Ravn and Sola (1997), who look at the effects of monetary policy on transitional dynamics. Hooker and Knetter (1996) analyze whether military procurement spending has asymmetric effects on employment, and they find that "big" negative shocks to procurement have proportionally larger effects on employment growth than large positive shocks or small shocks to procurement. Hooker (1996) examines whether there are asymmetries in the relationship between oil-price shocks and U.S. macroeconomic variables. He finds that the asymmetric effects in this relationship are fragile. Here we focus on the relationship between monetary policy shocks and aggregate activity. Lo and Piger (2003) examine regime switching in the response of U.S....

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Section: Asymmetric Effects Of Monetary Policy In the United Statesmentioning

confidence: 99%

Asymmetric Effects of Monetary Policy in the United States

Ravn¹,

Solà²

2004

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“…We find strong evidence that the time variation can be explained by a state variable indicating whether the economy is in a recession at the time the policy action was taken. In particular, policy actions taken during 1 See for example Belongia (1996), Cover (1992), DeLong and Summers (1988), Evans (1986), Garcia and Schaller (2002), Karras (1996), Karras and Stokes (1999), Kaufmann (2002), Morgan (1993), Parker and Rothman (2000), Smets (2001, 2002), Ravn and Sola (1999), Rhee and Rich (1995), Senda (2001), Thoma (1994), and Weise (1999). recessions seem to have larger effects than those taken during expansions.…”

Section: Introductionmentioning

confidence: 99%

Is the Response of Output to Monetary Policy Asymmetric? Evidence from a Regime-Switching Coefficients Model

Piger

2005

Journal of Money, Credit, and Banking

159

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This paper investigates regime switching in the response of U.S. output to a monetary policy action. We find substantial, statistically significant, time variation in this response, and that this time variation corresponds to "high response" and "low response" regimes. We then investigate whether the timing of the regime shifts are consistent with three particular manifestations of asymmetry by modeling the transition probabilities governing the switching process as a function of state variables. We find strong evidence that the regime shifts can be explained by whether the economy is in a recession at the time the policy action was taken. In particular, policy actions taken during recessions seem to have larger effects than those taken during expansions. We find much less evidence of any asymmetry related to the direction or size of the policy action.

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“…2 Papers studying the pre-WWII period include the work of Bordo and MacDonald (2003), Jeanne (1995), Lennard (2019) and Parker and Rothman (2004).…”

Section: Swedish Fiscal and Monetary Stabilisation Policies: 1873-2019mentioning

confidence: 99%

The quest for economic stability: a study on Swedish stabilisation policies 1873–2019

Andersson

2021

Scandinavian Economic History Review

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This paper explores the evolution of Swedish stabilisation policies through six policy regimes between 1873 and 2019. We focus on discretionary policy decisions by estimating policy shocks using a SVAR model. Through these shocks, we explore how stabilisation policies have evolved over time and how policymakers responded to key economic events such as financial crises and wars. Our results show three key results (i) policies are often a source of destabilisation rather than stabilisation, (ii) regimes are designed for a specific time and ends when economic circumstances change, and (iii) fixed exchange rates worsen the economic effects of financial crises.

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An Examination of the Asymmetric Effects of Money Supply Shocks in the Pre–World War I and Interwar Periods

Cited by 12 publications

References 30 publications

Asymmetric Effects of Monetary Policy in the United States

Asymmetric Effects of Monetary Policy in the United States

Is the Response of Output to Monetary Policy Asymmetric? Evidence from a Regime-Switching Coefficients Model

The quest for economic stability: a study on Swedish stabilisation policies 1873–2019

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