Financial Depth and the Asymmetric Impact of Monetary Policy

Caglayan, Mustafa and Kandemir Kocaaslan, Ozge and Mouratidis, Kostas (2016): Financial Depth and the Asymmetric Impact of Monetary Policy.

Abstract

This paper investigates the importance of financial depth in evaluating the asymmetric impact of monetary policy on real output over the course of the US business cycle. We show that monetary policy has a significant impact on output growth during recessions. We also show that financial deepening plays an important role by dampening the effects of monetary policy shocks in recessions. The results are robust to the use of alternative financial depth and monetary policy shock measures as well as to two different sample periods.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial depth; financial frictions; monetary policy; output growth; asymmetric effects; Markov switching; instrumental variable
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy

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