Asymmetric effects of money supply shocks and trend inflation

This paper considers a possible explanation for the asymmetric effects of m oney supply shocks. Based on a sticky price theory, I derive the following two predictions: First, the relationship between trend inflation and the de gree of asymmetry is not simply monotonic: instead, increases in inflation beyond some level can actually reduce the degree of asymmetry. Secondly, th e degree of asymmetry is high in countries where the standard deviation of nominal GDP growth is high. I examine prewar and postwar data for OECD coun tries and find that the cross-country evidence supports both of these predi ctions.