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Asymmetric Monetary Policy Effects in Germany

Discussion Papers 397, 15 S.

Vladimir Kuzin, Silke Tober

2004. Feb.

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In a small structural model we find asymmetries in the effects of monetary policy in Germany depending on whether the economy is in an upswing or a downswing. These two different regimes are also identified using a Markov-switching model and the Kalman filter. Our results indicate that the effects of monetary policy are significantly higher in a downswing than in an upswing. It follows not only that monetary policy has to raise interest rates markedly if an economy is overheating but also that once a downturn is discernible, interest rates have to be lowered rapidly so as to prevent an overly large reaction of the real economy.

JEL-Classification: C32;C51;E32;E44;E5
Keywords: Asymmetry; Monetary policy; Markov switching; Structural model
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