A Realistic Model for Official Interest Rate Movements and their Consequences Articles uri icon

authors

  • TENA HORRILLO, JUAN DE DIOS
  • OTRANTO, EDOARDO

publication date

  • January 2011

start page

  • 4431

end page

  • 4447

issue

  • 29

volume

  • 43

international standard serial number (ISSN)

  • 0003-6846

electronic international standard serial number (EISSN)

  • 1466-4283

abstract

  • This article extends the Vector Autoregression (VAR) methodology to examine the consequences of monetary policy decisions by considering two types of nonlinearities in the determination of official interest
    rates: (1) the asymmetry related to the different nature of the discrete
    and infrequent positive and negative interest rate movements determined
    by central bankers and (2) the convexity in the transmission of policy
    shocks induced by the nonnegativity constraint in interest rates. For
    the UK, we find some evidence of both types of asymmetries. In the US,
    responses to unexpected interest rate shocks are far more symmetric.
    Results highlight the importance of considering all types of asymmetries
    when studying monetary transmission.