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Business cycles and monetary policy asymmetry: An investigation using Markov-switching models

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  • Tan, Siow-Hooi
  • Habibullah, Muzafar Shah

Abstract

This study assesses empirically the effects of monetary policy on four ASEAN economies in different states. The idea of asymmetry is being examined by using the relatively popular technique of non-linear modeling—Hamilton's Markov regime-switching model. The findings confirmed the existence of two-regimes in all economies under study. Additionally, the null hypothesis of symmetry had been rejected in the case of the four economies and to a great extent, monetary policy was confirmed to have had larger effects during recessions. These findings, thus, may imply the important role that credit market imperfections have on a firm's investment behavior, which in turn suggests that the financial accelerator is a relevant mechanism underscoring the observed asymmetry.

Suggested Citation

  • Tan, Siow-Hooi & Habibullah, Muzafar Shah, 2007. "Business cycles and monetary policy asymmetry: An investigation using Markov-switching models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 380(C), pages 297-306.
    • Handle: RePEc:eee:phsmap:v:380:y:2007:i:c:p:297-306
    DOI: 10.1016/j.physa.2007.02.063
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    Cited by:

    1. Manuchehr Irandoust, 2020. "The effectiveness of monetary policy and output fluctuations: An asymmetric analysis," Australian Economic Papers, Wiley Blackwell, vol. 59(2), pages 161-181, June.
    2. Zare , Roohollah, 2015. "Asymmetric Effects of Monetary Policy and Business Cycles in Iran using Markov-switching Models," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 10(4), pages 125-142, October.
    3. Zhu, Yanli & Chen, Haiqiang, 2017. "The asymmetry of U.S. monetary policy: Evidence from a threshold Taylor rule with time-varying threshold values," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 473(C), pages 522-535.
    4. Ming-Yuan Leon Li, 2009. "Reexamining asymmetric effects of monetary and government spending policies on economic growth using quantile regression," Journal of Developing Areas, Tennessee State University, College of Business, vol. 43(1), pages 137-154, September.
    5. Shodipe Oladimeji T. & Shobande Olatunji Abdul, 2021. "Monetary Policy Dynamics in the United States," Open Economics, De Gruyter, vol. 4(1), pages 14-30, January.
    6. Zhang, Xiaoyuan & Zhang, Tianqi, 2022. "Barrier option pricing under a Markov Regime switching diffusion model," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 273-280.

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