Evidence from the OECD economies suggests that real output responds asymmetrically to equivalent positive and negative monetary shocks where contractionary shocks exert the stronger influence on real output. With the aid of annual data over a twenty-five-year period, the author examines whether this is the case for twelve UK regions. In the study he also incorporates recent theoretical arguments which predict that the degree of asymmetry to demand shocks is sensitive to trend inflation. Seemingly unrelated regression analysis suggests that there are significant differences in the nature of asymmetries across the regions, where inflation offers a limited contribution to the degree of asymmetry experienced.
Get full access to this article
View all access options for this article.
References
1.
BallLMankiwN, 1994, “Asymmetric price adjustment and economic fluctuations”Economic Journal104247–261.
2.
BaltagiB, 1995Econometric Analysis of Panel Data (John Wiley, Chichester, Sussex).
3.
BoverOMuellbauerJMurphyA, 1989, “Housing, wages and UK labour markets”Oxford Bulletin of Economics and Statistics5197–136.
4.
BuckleRCarlsonJ, 2000, “Menu costs, firm size and price rigidity”Economics Letters6659–63.
5.
CarlinoGDeFinaR, 1998, “The differential regional effects of monetary policy”Review of Economics and Statistics80572–587.
6.
ClaridaRGaliJGertlerM, 1998, “Monetary policy rules in practice: Some international evidence”European Economic Review421033–1067.
7.
CookS, 1999, “Regional variation in the cyclical asymmetry of UK unemployment”Applied Economics Letters6543–546.
8.
CoverJ, 1992, “Asymmetric effects of positive and negative money supply shocks”Quarterly Journal of Economics1021261–1282.
9.
De GrauweP, 1994The Economics of Monetary Integration (Oxford University Press, Oxford).
10.
De LongJSummersL, 1988, “How does macroeconomic policy affect output”Brookings Papers on Economic Activity2433–480.
11.
GarrisonCChangH, 1979, “The effects of monetary policy in regional economic activity”Journal of Regional Science1915–29.
12.
GarrisonCKortJ, 1983, “Regional impact of monetary and fiscal policy: A comment”Journal of Regional Science23249–261.
13.
GordonR J, 1990, “What is new-Keynesian economics”Journal of Economic Literature281115–1171.
14.
HallSYatesA, 1998, “Are there downward nominal rigidities in product markets?”, WP 80, Bank of England, London.
15.
HamiltonJ, 1989, “A new approach to the economic analysis of nonstationary time series and the business cycle”Econometrica57357–384.
16.
HolmesM, 1993, “The demand for building society mortgage finance in Northern Ireland and Scotland”Regional Studies27103–108.
17.
HughesGMcCormickB, 1987, “Housing markets, unemployment and labour market flexibility in the UK”European Economic Review31615–645.
18.
JonesDManningNStevensonM, 1994, “The unemployment rate and the business cycle in Britain: An aggregate and regional-analysis”Regional Studies28591–604.
19.
KarrasG, 1996, “Are the output effects of monetary policy asymmetric? Evidence from a sample of European countries”Oxford Bulletin of Economics and Statistics58267–278.
20.
KashyapA, 1995, “Sticky prices: New evidence from retail catalogues”Quarterly Journal of Economics110245–274.
21.
KeebleD, 1997, “Small firms, innovation and regional development in Britain in the 1990s”Regional Studies31281–293.
22.
KrugmanP, 1991Geography and Trade (Leuven University Press, Leuven).
23.
LucasR E, 1981Studies in Business Cycle Theory (Basil Blackwell, Oxford).
24.
McCormickB, 1997, “Regional unemployment and labour mobility in the UK”European Economic Review41581–589.
ObstfeldMPeriG, 1998, “Asymmetric shocks: Regional non-adjustment and fiscal policy”Economic Policy26207–259.
27.
RheeW, 1995, “Asymmetric effects of money on inflation: Evidence from Korean data”International Economic Journal931–43.
28.
RheeWRichR, 1995, “Inflation and the asymmetric effects of money on output fluctuations”Journal of Macroeconomics17683–702.
29.
RobertsJ, 1992, “Evidence on price adjustment costs in United States manufacturing industry”Economic Inquiry30399–417.
30.
SimsC, 1992, “Interpreting the macroeconomic time-series facts: The effects of monetary policy”European Economic Review36976–1000.
31.
StronginS, 1995, “The identification of monetary disturbances: Explaining the liquidity puzzle”Journal of Monetary Economics35463–497.
32.
StuartA, 1996, “Simple monetary policy rules”Bank of England Quarterly Bulletin36281–287.
33.
TaylorJ, 1993, “Discretion versus policy rules in practice”Carnegie – Rochester Conference on Public Policy39195–214.
34.
ToalW, 1977, “Regional impacts of monetary and fiscal policies in the postwar period: Some initial tests”, WP, Federal Reserve Bank of Atlanta, Atlanta, GA.
35.
TsiddonD, 1993, “The (mis)behaviour of the aggregate price level”Review of Economic Studies60889–902.
