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Asymmetric Monetary Policy Effects in Germany

In a small structural model we find asymmetries in the effects of monetary policy in Germany depending on whether the economy is in an upswing or a downswing. These two different regimes are also identified using a Markov-switching model and the Kalman filter. Our results indicate that the effects of monetary policy are significantly higher in a downswing than in an upswing. It follows not only that monetary policy has to raise interest rates markedly if an economy is overheating but also that once a downturn is discernible, interest rates have to be lowered rapidly so as to prevent an overly large reaction of the real economy.
Year of publication:
2004
Authors: Kuzin, Vladimir ; Tober, Silke
Institutions: DIW Berlin (Deutsches Institut für Wirtschaftsforschung)
Subject: Asymmetry | Monetary policy | Markov switching | Structural model
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application/pdf
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Type of publication: Book / Working Paper
Language: English
Notes:
Number 397 15 pages long
Classification: C32 - Time-Series Models ; C51 - Model Construction and Estimation ; E32 - Business Fluctuations; Cycles ; E44 - Financial Markets and the Macroeconomy ; E5 - Monetary Policy, Central Banking and the Supply of Money and Credit
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