Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/246130 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 7/2021
Publisher: 
Norges Bank, Oslo
Abstract: 
We analyse the implications of asymmetric monetary policy rules by estimating Markovswitching DSGE models for the euro area (EA) and the US. The estimations show that until mid-2014 the ECB's response to inflation was more forceful when inflation was above 2% than below 2%. Since then, the ECB's policy can be characterised as symmetric, and we quantify the macroeconomic implications of this policy change. We uncover asymmetries also in the Fed's policy, which has responded more strongly in times of crisis. We compute an optimal simple rule for the EA and the US in an environment with the effective lower bound and a low neutral real rate, and find that it prescribes a stronger response to inflation and the output gap when inflation is below target compared to when it is above target. We document its stabilisation properties had this optimal rule been implemented over the last two decades.
Subjects: 
Inflation targeting
Markov-switching DSGE
optimal monetary policy
effective lower bound
Bayesian Estimation
JEL: 
E52
E58
E31
E32
Persistent Identifier of the first edition: 
ISBN: 
978-82-8379-202-7
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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