Asymmetric Effects of Monetary Shocks: Theory and Application for Turkey

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The effects of economic shocks that cause contraction and expansion on real variables could appear to be different in terms of speed, intensity, and rate. Positive and negative shocks cause asymmetric movement on the real variable because these shocks produce different effects from each other. The question of whether real variables movement as asymmetric firstly came up with the studies of Keynes (1936) and Burns and Mitchell (1946) and has been the focus of theoretical and empirical studies up to now. Because the interest on this subject has caused theoretical and empirical debates, the purpose of this study is to investigate the asymmetric effects of monetary shocks on real production for Turkish economy at the period of 1990:I-2010:IV. For the purpose, a two-stage estimation method that was used by Barro (1977) has been used in this study. Monetary equation has been estimated in the first-stage. The method of Cover (1992) has been used to decompose monetary shocks, have been obtained from error terms of the monetary equation, as positive and negative. In the second-stage, with the aid of real GDP equation that contains positive and negative monetary shocks, whether monetary shocks have an effect asymmetrically on real production has been tested within framework of three different hypotheses. Empirical results imply that real output in Turkey is not equally affected by positive and negative monetary shocks and therefore monetary shocks have asymmetric effects on real output.

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Positive and negative monetary shocks , decomposition of economic shocks , asymmetric movement , asymmetric effect.

Ege Academic Review (EAR)

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Ege Academic Review (EAR)