EMU: some unanswered questions



3. Empirical evidence on asymmetries on the transmission of monetary policy and its
determinants

There is a broad empirical evidence on the existence of asymmetries on the transmission of
monetary policy. In this sense, it is possible to identify three different and well-defined
research lines: First, some authors use different econometric techniques to identify and
quantify the existence of asymmetries in the effect of monetary policy on output; second,
other authors justify the lack of agreement of the previous group remarking that the effects of
monetary policy are asymmetric between countries as they are in different stages of the
business cycle; and, last, the third group are interested in obtaining empirical evidence about
the determinants of the asymmetries considering the two previous lines of research.

In reference to the first research line, probably the one with the widest diffusion, there are
significant differences among countries in terms of output response to monetary shocks.
However, there is no agreement about the classification of countries in term of these
differences. As Kieler and Saarenheimo (1998, p. 32) affirm: “the results have generally
varied a great deal and, as a result, no consensus regarding the likely extent of nature of these
differences has arisen”. In this sense, the analysis of different time periods, different
assumptions about the exchange rate system in the considered countries and the use of
different econometric techniques (large scale macroeconomic models, single equation models
or structural VAR models, among others, see Britton and Whitley, 1997) would explain this
lack of agreement.

The second research line previously mentioned justifies the previous results assuming that the
effects of monetary policy are asymmetric over the business cycle and, as a result, countries
in different stages of the cycle would experience different responses to a common monetary
shock. The empirical evidence obtained by Kakes (1998) for Germany, Belgium, the United
Kingdom and the United States and Maria (1997) for Spain show that monetary policy is
much more effective during expansions than during recessions. However, differences among
countries in output responses to monetary shocks are not completely explained by this
hypothesis.

For this reason, the third considered research line focuses on identifying using empirical
evidence, but taking as a starting point the previously explained framework of monetary



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