Accommodative Monetary Policy Shocks Do Not Stimulate Output

This paper investigates whether the response of U.S. output to a monetary policy shock is symmetric over three dimensions: the direction of the shock, the size of the shock, and what phase the business cycle is in when the shock takes place. Theory suggests that looking at individual asymmetries may not tell the whole story and that interactions among the asymmetries may be important. My results show that business cycle and directional asymmetry are important while the size of the shock is not. In addition, the directional asymmetry results are being driven by monetary policy stimulus having little effect on output. This calls into question the ability of traditional monetary policy to combat recessions.

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This Figure contains the response of output to a monetary policy shock when local projections is run on a model that includes directional asymmetry, business cycle asymmetry, and the interction between the two. A distinction is made between what phase of the business cycle that the shock takes place during and whether the shock is positive or negative in this figure. The two main finidings here are that accommodative shocks have no significant effects on output and that monetary policy shocks taken during recessions have more of an effect on output.

Monetary Policy, Fiscal Policy, and the Great Recession

The aim of this paper is to examine if government policies helped the economy and the people adversely affected by the Great Recession of 2008. This is assessed by examining the relative impacts of monetary and fiscal policies on unemployment during the Great Recession (2008 – 2009) within vector autoregression models. Using federal budget deficits and surpluses as a proxy for fiscal policy and money supply and interest rates to capture the effects of monetary policy, the paper finds that the three variables account for 24.57%, 27.21% and 24.78%, of the variance of unemployment respectively. Estimation of the same model over the pre-Recession periods (2001:10 – 2007:09) finds the three variables explaining 9.53%, 43.16% and 13.74% respectively of the variance of unemployment. This finding is broadly consistent with Christopher Sims’ (2013) assertion that monetary and fiscal policies are intertwined during and after the Great Recession.

with Abdullah Dewan

Citation: Dewan, A. and T. Stockwell (2015). Monetary Policy, Fiscal Policy, and the Great Recession. National Social Science Journal 46(2), 73-83.

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Stochastic Trends, Outliers, and State Dependent Effects of Monetary Policy

This paper investigates whether there are significant differences in the response of US output to monetary policy in expansions and recessions. While much of the existing literature has found that monetary policy is more effective in recessions, a recent influential paper that found the opposite has left the literature with a lack of consensus. My baseline local projections model agrees with the result that monetary policy is more effective in expansions. However, this is not robust to the frequency of data and measure of output used, the way that stochastic trends in the data are handled, and outliers in the monetary shock measure. When all three of these specifications are considered simultaneously, I find that monetary policy is more effective in recessions.

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Macro Group Presentation

A Bayesian Investigation of Monetary Policy Asymmetry

In this paper, I will investigate if the effects of monetary policy are asymmetric across multiple dimensions. The recent literature investigating asymmetry uses local projection models developed in Jorda (2005) to generate impulse responses since they are simple to estimate and more robust to misspecification than VAR models. Adding in Bayesian estimation into local projections would allow for comparison of different types of asymmetry, incorporating a potentially large set of control variables, and allow for structural breaks in the model. I will use the results of Lusompa (2020) to investigate the asymmetric effects of monetary policy in a Bayesian framework.

Kleinsorge Research Award Presentation