Understanding the Size of the Government Spending Multiplier: It's in the Sign

The effectiveness of monetary policy and output fluctuations: An asymmetric analysis

“…We thus find that the governments tend to pursue countercyclical monetary policy and that the effects of monetary policy using the real interest rate is asymmetric, with the effectiveness of monetary policy being higher when the growth rate of real output is negative. Thus, this is in line with the results presented by other studies on asymmetric behaviour of monetary policy, for example, Cover (1992) and Barnichon et al (2017) which suggest that contractionary monetary policy is more effective than expansionary.…”

“…The central banks’ ability to stimulate the economy through expansionary policy appears less potent than contractionary policy has on output even in the long run. However, the results are supportive of the literature, for example, DeLong and Summers (1988), Cover (1992) and Barnichon et al (2017) that find that output responds more to a policy contraction than a policy stimulus.…”

“…If economic conditions have reduced demand, expansionary policy will not necessarily increase borrowing and spending. In other words, unlike tight monetary policy, it is not a binding constraint on consumers (Barnichon, Matthes, & Sablik, 2017; Morgan, 1993).…”

“…Empirical evidence addresses different issues about asymmetric behaviour of monetary policy. A number of studies reveal that monetary policy has asymmetric effects on output and contractionary policy is seen to be inherently more effective than expansionary policy (Barnichon & Matthes, 2016; Cover, 1992; Garcia & Schaller, 2002; Kakes, 1998; Karras, 1996; Kilinc & Tunc, 2019; Peersman & Smets, 2001, 2002; Santoro et al, 2014; Tan & Habibullah, 2007). But other studies report that the direction of the monetary change is not an important issue whereas its size is a central issue (e.g., Ravn & Sola, 1996).…”

Asymmetric effects of monetary policy shocks on output growth in Nigeria: Evidence from nonlinear ARDL and Hatemi‐J causality tests

“…Findings from the study showed sufficient evidence of asymmetry in the effect of monetary policy in Egypt, with small, and positive shocks having a considerable effect on both inflation and real production. Conversely, the study of Barnichon and Matthes (2014) on the asymmetric responses of prices to monetary policy shocks using the Gaussian Mixture Approximations and Nonlinear effects models found no evidence of asymmetries in the effects of the monetary policy shocks.…”