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Theory and Empirics of Asymmetry

Theory and Empirics of Asymmetry

Objective

Why is there a Volcker disinflation but no Bernanke re-inflation? It is not only because of the zero lower bound as a nascent literature is suggesting that monetary policy is more potent in a contractionary stance than in an expansionary stance away from the ZLB as well. But why? Why is it that central banks cut interest rates much faster than they raise them? Why does it seem like financial markets give much different responses to seemingly similar macroeconomic news at different times? Are these all related?
This research project is about asymmetries in macroeconomics and finance. I will be working on these questions because our current understanding of these issues hints at some facets of asymmetries but is a long way from providing broad evidence and matching theories. I find these questions thoroughly interesting because the theory and empirical evidence we now have lets us ask the questions and understand their research and policy relevance but not yet satisfactorily answer them.
Most of our macroeconomic models are linearized and linear models (with exceptions that effectively make the model piece-wise linear) do not generate asymmetric anything. But the issue is not in the solution method: nonlinear solutions of standard models also do not produce asymmetric responses in noticeable ways. Hence, although by experience we understand there are likely sizable asymmetries in macroeconomic and financial outcomes, we have neither extensively documented these nor understood what brings them about.

This research program, then, will consist of five distinct but related questions:
1. Are there asymmetries due to the state of the business cycle and the nature of the shock?
2. Do financial markets behave as if market participants perceive the world to be asymmetric?
3. Do policymakers behave asymmetrically and if so why?
4. To the extent that there are asymmetries, what brings them about?
5. What kinds of policies should we be thinking of in a world with asymmetries?
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Host institution

BILKENT UNIVERSITESI VAKIF

Address

Eskisehir Yolu 8 Km
06800 Bilkent Ankara

Turkey

Activity type

Higher or Secondary Education Establishments

EU Contribution

€ 1 276 640

Beneficiaries (1)

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BILKENT UNIVERSITESI VAKIF

Turkey

EU Contribution

€ 1 276 640

Project information

Grant agreement ID: 726400

Status

Ongoing project

  • Start date

    1 March 2017

  • End date

    28 February 2022

Funded under:

H2020-EU.1.1.

  • Overall budget:

    € 1 276 640

  • EU contribution

    € 1 276 640

Hosted by:

BILKENT UNIVERSITESI VAKIF

Turkey