Do the Effects of Expansionary Monetary Policy Shocks on Output Persistence Depend on Inflation Regimes?
Evidence shows that expansionary monetary policy shocks raise output persistence more when inflation is below or equal to 6 % than when it is above 6 %. Output persistence rises more to a scenario of successive policy rate cuts of varying magnitude than a constant policy rate change scenario. The findings indicate that low economic policy uncertainty magnifies the output persistence response to expansionary monetary policy shocks. By contrast, high economic policy uncertainty lowers the output persistence response to an expansionary monetary policy shock. In policy terms, this implies that a larger expansionary monetary policy shock than expected will raise output persistence significantly and the amplification effects will be enlarged when inflation is in the low inflation regime.
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