Asymmetric effects of monetary policy

Abstract: This thesis analyses if macroeconomic policy has asymmetric effects on output and unemployment, comparing the effectiveness of monetary policy when the output gap is positive to when it is negative. Asymmetric effects may be present due to uncertainty and loss aversion, the downward-stickiness of prices, or financial market imperfections. The empirical analysis is conducted through a panel data regression, with data from Sweden, Norway, the UK, the Czech Republic, Canada, and the US, spanning from 1996Q1 to 2017Q4. The results show that monetary policy is more effective when the output gap is positive, and that the monetary policy conducted when it is positive is contractionary, and thus that contractionary monetary policy seems more effective than expansionary, although the empirical study presents certain problems that bring the results into question.