Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/311147 
Authors: 
Year of Publication: 
2024
Series/Report no.: 
ECB Working Paper No. 2983
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper introduces a Bayesian Quantile Factor Augmented VAR (BQFAVAR) to examine the asymmetric effects of monetary policy throughout the business cycle. Monte Carlo experiments demonstrate that the model effectively captures non-linearities in impulse responses. Analysis of aggregate responses to a contractionary monetary policy shock reveals that financial variables and industrial production exhibit more pronounced impacts during recessions compared to expansions, aligning with predictions from the "financial accelerator" propagation mechanism literature. Additionally, inflation displays a higher level of symmetry across economic conditions, consistent with households' loss aversion in the context of reference-dependent preferences and central banks' commitment to maintaining price stability. The examination of price rigidities at a granular level, employing sectoral prices and quantities, demonstrates that during recessions, the contractionary policy shock results in a more pronounced negative impact on quantities compared to expansions. This finding provides support for the notion of stronger downward than upward price rigidity, as suggested by "menu-costs models".
Subjects: 
Bayesian Quantile VAR
FAVAR
Asymmetric effects of monetary policy
Disaggregate prices
Non-linear models
JEL: 
C11 C32 E32 E37 E52
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6833-1
Document Type: 
Working Paper

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