We investigate how the response of the US economy to monetary policy shocks depends on the state of the business cycle. The effects of monetary policy are less powerful in recessions, especially for durables expenditure and business investment. The asymmetry relates to how fast the economy is growing, rather than to the level of resource utilization. There is some evidence that fiscal policy has counteracted monetary policy in recessions but reinforced it in booms. We also find evidence that contractionary policy shocks are more powerful than expansionary shocks, but contractionary shocks have not been more common in booms. So this asymmetry cannot explain our main finding.
Tenreyro, Silvana, and Gregory Thwaites.
"Pushing on a String: US Monetary Policy Is Less Powerful in Recessions."
American Economic Journal: Macroeconomics,
Macroeconomics: Consumption; Saving; Wealth
Investment; Capital; Intangible Capital; Capacity
Business Fluctuations; Cycles