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Pushing on a string: US monetary policy is less powerful in recessions

Tenreyro, Silvana and Thwaites, Gregory (2013) Pushing on a string: US monetary policy is less powerful in recessions. CFM discussion paper series (CFM-DP2013-1). Centre For Macroeconomics, London, UK.

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We estimate the impulse response of key US macro series to the monetary policy shocks identified by Romer and Romer (2004), allowing the response to depend flexibly on the state of the business cycle. We find strong evidence that the effects of monetary policy on real and nominal variables are more powerful in expansions than in recessions. The magnitude of the difference is particularly large in durables expenditure and business investment. The effect is not attributable to differences in the response of fiscal variables or the external finance premium. We find some evidence that contractionary policy shocks have more powerful effects than expansionary shocks. But contractionary shocks have not been more common in booms, so this asymmetry cannot explain our main finding.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2013 The Authors
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > HJ Public Finance
JEL classification: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects)
Sets: Collections > Economists Online
Research centres and groups > Centre for Macroeconomics
Date Deposited: 29 Jul 2014 08:12
Last Modified: 11 Feb 2021 00:25
Funders: European Research Council

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