The Asymmetric Effects of Monetary Policy: A Nonlinear Vector Autoregression Approach

This paper tests for nonlinearity in a standard vector autoregression including output, prices, and money supply using an estimation strategy that is consistent with a wide range of structural macroeconomic models. Shocks to the money supply are found to have stronger output effects and weaker price effects when output growth is initially low. Positive and negative monetary shocks are found to have nearly symmetric effects. In addition, there is some evidence that shocks of different magnitudes have asymmetric effects. These results are consistent with the view that the aggregate supply curve is convex.