The Asymmetric Effects of Monetary Policy

Abstract.  The paper deals with the asymmetric effects on output of tight and easy monetary policy: the output reduction following a negative monetary policy shock appears bigger than the expansion induced by similar sized positive shock. The paper first reviews historical evidence of asymmetry, focusing on the United States, Japan and Italy. This is followed by a review of the econometric literature on monetary policy asymmetry and consideration of the theoretical reasons that can explain this asymmetry.