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

Tenreyro, Silvana and Thwaites, Gregory (2016) Pushing on a string: US monetary policy is less powerful in recessions. American Economic Journal: Macroeconomics, 8 (4). pp. 43-74. ISSN 1945-7707

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Identification Number: 10.1257/mac.20150016

Abstract

We investigate how the response of the US economy to monetary policy shocks depends on the state of the business cycle. The effects of monetary policy are less powerful in recessions, especially for durables expenditure and business investment. The asymmetry relates to how fast the economy is growing, rather than to the level of resource utilization. There is some evidence that fiscal policy has counteracted monetary policy in recessions but reinforced it in booms. We also find evidence that contractionary policy shocks are more powerful than expansionary shocks, but contractionary shocks have not been more common in booms. So this asymmetry cannot explain our main finding.

Item Type: Article
Official URL: https://www.aeaweb.org/journals/mac
Additional Information: © 2016 American Economic Association
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
J Political Science > JK Political institutions (United States)
JEL classification: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E21 - Macroeconomics: Consumption; Saving; Aggregate Physical and Financial Consumer Wealth
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment (including Inventories); Capacity
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: Departments > Economics
Date Deposited: 08 Feb 2017 15:04
Last Modified: 29 Sep 2020 10:45
URI: http://eprints.lse.ac.uk/id/eprint/69214

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