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Loss aversion and the asymmetric transmission of monetary policy
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Santoro, Emiliano, Petrella, Ivan, Pfajfar, Damjan and Gaffeo, Edoardo (2014) Loss aversion and the asymmetric transmission of monetary policy. Journal of Monetary Economics, 68 . pp. 19-36. doi:10.1016/j.jmoneco.2014.07.009 ISSN 0304-3932.
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Official URL: http://dx.doi.org/10.1016/j.jmoneco.2014.07.009
Abstract
There is widespread evidence that monetary policy exerts asymmetric effects on output over contractions and expansions in economic activity, while price responses display no sizeable asymmetry. To rationalize these facts we develop a dynamic general equilibrium model where households’ utility depends on consumption deviations from a reference level below which loss aversion is displayed. State-dependent degrees of real rigidity and elasticity of intertemporal substitution in consumption generate competing effects on output and inflation. Contractions face the Central Bank with higher responsiveness of output to interest rate changes, as well as a flatter aggregate supply schedule.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HG Finance | ||||||||
Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||||
Library of Congress Subject Headings (LCSH): | Monetary policy, Macroeconomics, Economic policy | ||||||||
Journal or Publication Title: | Journal of Monetary Economics | ||||||||
Publisher: | Elsevier BV | ||||||||
ISSN: | 0304-3932 | ||||||||
Official Date: | November 2014 | ||||||||
Dates: |
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Volume: | 68 | ||||||||
Page Range: | pp. 19-36 | ||||||||
DOI: | 10.1016/j.jmoneco.2014.07.009 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 10 May 2017 | ||||||||
Date of first compliant Open Access: | 10 May 2017 |
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