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The effects of the monetary policy stance on the transmission mechanism

The effects of the monetary policy stance on the transmission mechanism Abstract This paper contributes to the literature on changes in the transmission mechanism of monetary policy by introducing a model whose parameter evolution explicitly depends on the stance of monetary policy. The model, a structural break endogenous threshold VAR, also captures changes in the variance of shocks, and allows for a break in the parameters at an estimated time. We show that the transmission is asymmetric depending on the extention of the deviation of the actual policy rate from the one required by the Taylor rule. When the policy stance is tight – actual rate is higher than the one implied by the Taylor rule – contractionary shocks have stronger negative effects on output and prices. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Studies in Nonlinear Dynamics & Econometrics de Gruyter

The effects of the monetary policy stance on the transmission mechanism

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Publisher
de Gruyter
Copyright
Copyright © 2014 by the
ISSN
1081-1826
eISSN
1558-3708
DOI
10.1515/snde-2012-0027
Publisher site
See Article on Publisher Site

Abstract

Abstract This paper contributes to the literature on changes in the transmission mechanism of monetary policy by introducing a model whose parameter evolution explicitly depends on the stance of monetary policy. The model, a structural break endogenous threshold VAR, also captures changes in the variance of shocks, and allows for a break in the parameters at an estimated time. We show that the transmission is asymmetric depending on the extention of the deviation of the actual policy rate from the one required by the Taylor rule. When the policy stance is tight – actual rate is higher than the one implied by the Taylor rule – contractionary shocks have stronger negative effects on output and prices.

Journal

Studies in Nonlinear Dynamics & Econometrics – de Gruyter

Published: May 1, 2014

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    Hansen
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    Inoue
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    Davig
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    Boivin
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    Levin
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    Goodfriend
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    Fernandez
  • Testing and Modeling Multivariate Threshold Models of Statistical
    Tsay
  • Asymmetric Effects of in the United States Federal of
    Ravn
  • Housing Federal Reserve Bank of Kansas City
    Taylor
  • Tests for Parameter Instability and Structural Change with Unknown Change Point
    Andrews
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    Tong
  • The Asymmetric Effects of Nonlinear Vector Autoregression Approach of and
    Weise
  • Measure for Credibility Tracking the US Great Moderation of
    Demertzis
  • Why is it so Hard to Measure the Current Output Gap Macroeconomics
    Van Norden
  • Understanding the Evolving Inflation Process Report
    Cecchetti