Monetary Shocks and the Asymmetric Adjustment of Uk Regional Output

Abstract

Evidence from the OECD economies suggests that real output responds asymmetrically to equivalent positive and negative monetary shocks where contractionary shocks exert the stronger influence on real output. With the aid of annual data over a twenty-five-year period, the author examines whether this is the case for twelve UK regions. In the study he also incorporates recent theoretical arguments which predict that the degree of asymmetry to demand shocks is sensitive to trend inflation. Seemingly unrelated regression analysis suggests that there are significant differences in the nature of asymmetries across the regions, where inflation offers a limited contribution to the degree of asymmetry experienced.