Asymmetric Effects of Monetary Policy Easing and Tightening

• Authors: Luca Gambetti and Davide Debortoli.
• BSE Working Paper: 110678 | October 20
• Keywords: monetary policy shocks , nonlinear effects , structural VAR models
• JEL codes: C32, E32
• monetary policy shocks
• nonlinear effects
• structural VAR models

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 Structural Vector Autoregressions with exogenous variables (SVARX). We rationalize the result through the lens of a simple model with downward nominal wage rigidities.