Asymmetric Monetary Effects on Interest Rates across Monetary Policy Stances

Abstract

This paper provides new evidence that the interest rates response to a money supply shock varies across the state of the monetary policy stance. The state is assigned to one of the tight, neutral, and loose regimes based on an estimated policy stance index. The results of threshold vector autoregression analysis imply that pure liquidity and expected inflation effects vary across regimes with agents' reactions to policy. The results exhibit a persistent, dominating liquidity effect under the neutral and loose regimes but a reversed liquidity effect after a short lag under the tight regime.

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