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Silvana Tenreyro
- 15 September 2026
- WORKING PAPER SERIES - No. 3281Details
- Abstract
- How does the effectiveness of monetary policy vary over the policy cycle? Do tightenings and loosenings have symmetric effects on the macroeconomy? This paper addresses these questions using a nonlinear empirical framework that allows financial exposure to evolve endogenously in response to macroeconomic conditions and monetary policy changes. We provide new evidence on how monetary policy effectiveness varies over the policy cycle and across economic states. We find that i) monetary policy transmits more strongly to the real economy in periods of elevated private-sector financial exposure; ii) tightening cycles increase financial exposure in the short run, which in turn amplifies the effect of further interest rate increases, whereas loosening cycles lower financial exposure, increasingly dampening the effect of interest rate cuts; iii) tightening during economic downturns further intensifies debt-servicingpressures, making monetary policy even more potent; instead, when the tightening occurs during expansions, monetary policy effectiveness is not materially affected.
- JEL Code
- E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
- 11 November 2005
- WORKING PAPER SERIES - No. 551Details
- Abstract
- Why is GDP so much more volatile in poor countries than in rich ones? To answer this question, we propose a theory of technological diversification. Production makes use of different input varieties, which are subject to imperfectly correlated shocks. As in endogenous growth models, technological progress increases the number of varieties, raising average productivity. In our model, the expansion in the number of varieties provides diversification benefits against variety-specific shocks and it hence lowers the volatility of output. Technological complexity evolves endogenously in response to profit incentives. Complexity (and hence output stability) is positively related with the development of the country, the comparative advantage of the sector, and the sector's skill and technology intensity. Using sector-level data for a broad sample of countries, we provide extensive empirical evidence confirming the cross-country and cross-sectoral predictions of the model.
- JEL Code
- O11 : Economic Development, Technological Change, and Growth→Economic Development→Macroeconomic Analyses of Economic Development
O14 : Economic Development, Technological Change, and Growth→Economic Development→Industrialization, Manufacturing and Service Industries, Choice of Technology
O41 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity→One, Two, and Multisector Growth Models
E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles - Network
- ECB-CFS Research Network on "Capital Markets and Financial Integration in Europe"