Abstract
ABSTRACTThis paper examines whether the effects of monetary policy on output in Europe are asymmetric. Data from the 1953–90 period are used to identify money‐supply shocks and their effects on output for a panel of 18 European countries. Many different specifications and estimation methods strongly support asymmetry: negative money‐supply shocks are shown to have a statistically significant effect on output, whereas the effect of positive shocks is statistically insignificant. A similar asymmetry governs the output effects of interest rate changes. The sources of these asymmetries are traced to similar behavior for consumption and investment. These findings imply that positive money‐supply shocks may be an ineffective anti‐recession policy, and more generally, that the monetary component of the optimal stabilization policy should be less activist than generally thought.
Published Version
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