TY - JOUR
T1 - Loss Aversion and the Asymmetric Transmission of Monetary Policy
AU - Santoro, Emiliano
AU - Petrella, Ivan
AU - Pfajfar, Damjan
AU - Gaffeo, Edoardo
PY - 2014
Y1 - 2014
N2 - 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.
AB - 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.
U2 - 10.1016/j.jmoneco.2014.07.009
DO - 10.1016/j.jmoneco.2014.07.009
M3 - Journal article
VL - 68
SP - 19
EP - 36
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
SN - 0304-3932
ER -