DP15005 Asymmetric Effects of Monetary Policy Easing and Tightening

Author(s):	Davide Debortoli, Mario Forni, Luca Gambetti, Luca Sala
Publication Date:	July 2020
Keyword(s):	monetary policy shocks, nonlinear effects, structural VAR models
JEL(s):	C32, E32
Programme Areas:	Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=15005

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.