Abstract for CGBCR Discussion Paper 10
‘Asymmetric Interest Rate Effects for the UK Real Economy’
Marianne Sensier, Denise R. Osborn and Nadir Öcal
May 2002, Centre for Growth and Business Cycle Research Discussion Paper Series, University of Manchester, No. 10. Download PDF file (754KB).
Recent literature has uncovered asymmetries in the response of real output to monetary policy variables. Nevertheless, it remains unclear whether such asymmetries relate to different responses to monetary policy or to the business cycle. This paper uses nonlinear models to examine the issues in the context of interest rate effects on quarterly UK GDP growth. Strong evidence of nonlinearity is found, with asymmetry relating to the business cycle through lagged GDP regimes and interest rate changes. The results suggest that interest rate effects on GDP are larger when either lagged growth has been high or when interest rates have substantially increased in the past. However, the inclusion of interest rate regimes without taking account of GDP regimes yields an unsatisfactory model.