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Title: Asymmetric Effects of Monetary Policy Easing and Tightening

Author(s): Davide Debortoli, Mario Forni, Luca Gambetti and Luca Sala

Publication Date: July 2020

Keyword(s): monetary policy shocks, nonlinear effects and structural VAR models

Programme Area(s): Monetary Economics and Fluctuations

Abstract: Monetary policy easing and tightening have asymmetric effects: a policy easing has large effects on prices but small effects on real activity variables. The opposite is found for a policy tightening: large real effects but small effects on prices. Nonlinearities are estimated using a new and simple procedure based on linear Strutural Vector Autoregressions with exogenous variables (SVARX). We rationalize the result through the lens of a simple model with downward nominal wage rigidities.

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Bibliographic Reference

Debortoli, D, Forni, M, Gambetti, L and Sala, L. 2020. 'Asymmetric Effects of Monetary Policy Easing and Tightening'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15005