Do central banks act asymmetrically? Empirical evidence from the ECB and the bank of England

Altavilla, Carlo; Landolfo, Luigi

Abstract

The paper attempts to exploit whether monetary authorities have a different behaviour during recession and expansion. To this end, a multivariate extension of Hamilton Markov-switching model is adopted. First, regime dependent Taylor-type rules are estimated for the Euro Area and the United Kingdom in order to capture the systematic behaviour of central banks. Then, impulse response functions that account for the different phases of the business cycle are analysed. In addition, a comparative analysis concerning the estimated rules as well as the different reaction of real economy to monetary shocks is implemented. The study strongly suggests that central banks cannot neglect the regime where the monetary action takes place. It follows that the phase of business cycle is an important matter in monetary policy decision process. © 2005 Taylor & Francis Group Ltd.

• Journal Article Type: Article
• Publication Date: Mar 20, 2005
• Journal: Applied Economics
• Print ISSN: 0003-6846
• Electronic ISSN: 1466-4283
• Publisher: Taylor & Francis (Routledge)
• Peer Reviewed: Peer Reviewed
• Volume: 37
• Issue: 5
• Pages: 507-519
• DOI: https://doi.org/10.1080/0003684042000307072
• Keywords: central banks, Bank of England, asymmetries
• Public URL: https://uwe-repository.worktribe.com/output/1050883
• Publisher URL: http://dx.doi.org/10.1080/0003684042000307072