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Asymmetric effects of monetary policy in the United States

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  • Morten O. Ravn
  • Martin Sola

Abstract

This paper tests for the presence of asymmetric effects of monetary policy on output. The asymmetries that the authors examine are related to the size and sign of monetary policy shocks and are based on economic theory. Using M1 as the basis for measuring monetary policy shocks, they find evidence in line with previous evidence of larger real effects resulting from positive shocks than from negative shocks?although the authors cannot reject symmetry either. However, using the federal funds rate instead, a measure that is more closely related to the actual conduct of monetary policy, they find that only small negative shocks affect real aggregate activity. The results are interpreted in terms of menu-cost models.

Suggested Citation

  • Morten O. Ravn & Martin Sola, 2004. "Asymmetric effects of monetary policy in the United States," Review, Federal Reserve Bank of St. Louis, vol. 86(Sep), pages 41-60.
    • Handle: RePEc:fip:fedlrv:y:2004:i:sep:p:41-60:n:v.86no.5
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    References listed on IDEAS

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    1. George A. Akerlof & Janet L. Yellen, 1985. "A Near-Rational Model of the Business Cycle, with Wage and Price Inertia," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(Supplemen), pages 823-838.
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    Keywords

    Monetary policy; Macroeconomics;

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