Asymmetric monetary effects on interest rates across monetary policy stances

This paper provides new evidence that the interest rate response to a money supply shock varies with the stare of the monetary policy stance. The slate is assigned to one of the tight, neutral, and loose regimes based on an estimated policy stance index. The results of threshold vector autorepression analysis imply that pure liquidity and expected inflation effects vary across regimes with agents' reactions to policy. The results exhibit a persistent, dominating liquidity effect under the neutral and loose regimes but a reversed liquidity effect after a short lag under the tight regime.