Mauricio Mayorga-Martinez
Published: 1998
Total Pages: 0
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The main objective of this research is to collect some empirical evidence on the relationship between monetary and real phenomena in the short and long run as well as the possible asymmetric effects of monetary policy. Among the factors that contribute to the asymmetry are changes in expectations, credit restrictions, and price stickiness. For Costa Rica, monetary asymmetry was intended to be captured through the use of vector autoregressions (VARs) applied to the aggregate M1 and two-stage least squares applied to the interest rates. For the former case, there is no significant evidence of a relationship of short-run movements of M1 on real growth and employment. There exists, however, some indication of an impact of changes in M1 upon the interest rates. Regarding the effect of changes, there is an asymmetric impact upon real activity when a two-period lag is used. Regarding monetary policy, these results imply the following: Monetary shocks are an important source of pressure on the aggregate demand; monetary policy may contribute to economic growth through smoothing the impact of monetary shocks; interest rates may become leading indicators of price variations; and finally, pressure groups may be interested in looking for reductions of interest rates. As a conclusion, the research points out the absences of the non-neutrality hypothesis. Variations of M1 exert pressures on real activity through time.