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asymmetric impact of monetary policy

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Although the US economy might be in even worse shape at the present time if the Fed had not reduced its Fed funds target between August 2007 and January 2009 from 5.25% to .25%, the unemployment rate has risen to almost 10% and we have officially been in a recession since January 2008. Why have the Fed's rate reductions not had a more powerful effect in preventing a recession?

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The asymmetric impact of monetary policy is presented. Why the Fed's rate reductions have not has a more powerful effect in preventing a recession is determined.

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Economists have argued off and on about the asymmetric impact of monetary policy. This case is another classic example of such an asymmetric impact.

We say that a policy has an asymmetric impact when the reaction of output and other variables is different depending on the state of the economy. It is widely accepted that monetary policy is a good tool to cut down inflationary gaps, but is a poor tool to stimulate the economy. For further details on this aspect look at the attached paper from Kansas City Fed.

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