Asymmetric Adjustment In The Effects Of Monetary Policy On Output: Evidence In The USA And Canada Using A Cointegration Analysis

Abstract

Using a set of cointegration and error correction models with Threshold Autoregressive (TAR) or Momentum Threshold Autoregressive (MTAR) asymmetric adjustment, we investigate whether the effects of monetary policy on output in the USA and Canada are asymmetric or not. Forty years of quarterly data on output, money supply, price of oil and interest rate for the USA and Canada obtained from the International Monetary Funds International Financial Statistics CD-ROM were used for the different tests. Empirical results show that the effects of monetary policy on output are asymmetric in both countries. Furthermore, the impulse response functions indicate that the results are consistent with a dynamic asymmetry in the behavior of money supply movements in both countries.