The name is absent

5. Concluding Remarks and Extensions

Despite the empirical evidence and the strong theoretical arguments, there is
a lack of a general equilibrium approximation to the issue of asymmetries in the
monetary macroeconomic literature. This paper aims at filling this gap, developing
a quantitative model of the monetary transmission mechanism in this regard and
analyzing its implications for the conduct of monetary policy. The overall message
of this article for monetary policy is that the same central bank actions may have
quantitatively different macroeconomic effects depending on the extent to which
productive resources are being used, that is, depending on the capacity utilization
rate in the economy. A dynamic stochastic general equilibrium model consistent
with these facts is developed. Specifically, it has been considered the interaction
of endogenous capacity utilization (derived from productive constraints and firm
heterogeneity) and market power within a quantitative macroeconomic model of the
monetary transmission mechanism. The monetary structure of the model assumes
a Lucas-Fuerst ‘limited participation’ constraint. In the real side, the fact that
firms face a positive probability of being producing at variable capacity provides
credible microfoundations to the idea of ex post inflexibilities in production sector
that have recently been the object of study in the related literature.

The source of the asymmetry is directly linked to the bottlenecks and stock-outs
that emerge from the existence of capacity constraints in the real side of the econ-
omy. Hence, these constraints act as a source of amplification of monetary shocks
and generates asymmetries in the response of key macroeconomic variables. These
effects interact additionally with those emerging from the Imperfectly-Competitive
environment that characterizes the intermediate-good sector. Such effects work
through optimal mark-up changes. Within the structure of the model, a non-
walrasian pricing behavior in line with ‘sticky’ price models could easily be in-
corporated and thus, follow the results of recent empirical evaluation exercises of
DGSE models, such as those of Christiano, et al. (1997), where it is claimed that
a combination of limited participation with sticky-price behavior could successfully
account for the basic stylized facts observed in the data. Hence, developing a model
equipped with both types of frictions will be of notably interest.

The quantitative analysis presented here focuses on the asymmetric effects of
monetary policy, but there is an important issue that has to be considered: the
timing of the response of the macroeconomic variables to the shock. In the model
above, such response is immediate and there is a lack of propagation. Andolfatto
et al. (2000) generate persistent liquidity effects assuming that individuals are not
able to perfectly observe the current monetary policy shock. It will be interesting
to incorporate this latter feature into the model presented here and see how the
resulting outcome is.

The empirically plausible asymmetry of the Phillips curve, due to the fact that
some firms find it difficult to increase their capacity to produce in the short run,
is going to have important implications for the conduct of monetary policy. In
this sense, Nobay and Peel (2000) have shown that the analysis of optimal discre-
tionary monetary policy under a non-linear Phillips Curve yields results that are in
marked contrast with those obtained under the conventional linear paradigm. All
these particularities, that are likely to offer interesting insights into the monetary
transmission mechanism, are worthwhile exploring using the analytical framework
developed here.

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