Norges Bank

Working Paper

Asymmetric monetary policy rules for the euro area and the US

Junior Maih, Falk Mazelis, Roberto Motto and Annukka Ristiniemi
Working Paper


We analyse the implications of asymmetric monetary policy rules by estimating Markovswitching DSGE models for the euro area (EA) and the US. The estimations show that until mid-2014 the ECB's response to inflation was more forceful when inflation was above 2% than below 2%. Since then, the ECB's policy can be  characterised as symmetric, and we quantify the macroeconomic implications of this policy change. We uncover asymmetries also in the Fed's policy, which has responded more strongly in times of crisis. We compute an optimal simple rule for the EA and the US in an environment with the effective lower bound and a low neutral real rate, and find that it prescribes a stronger response to inflation and the output gap when inflation is below target compared to when it is above target. We document its stabilisation properties had this optimal rule been implemented over the last two decades.

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ISSN 1502-8190 (online)

Published 13 September 2021 11:40
Published 13 September 2021 11:40