- APPLIED ECONOMICS Journal
- January 2011
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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.