Monetary shocks, inflation and the asymmetric adjustment of UK industrial output

Abstract

There is evidence that real output responds asymmetrically to monetary shocks. Models advanced by Tsiddon and Ball and Mankiw argue that the degree of asymmetry to demand shocks is sensitive to inflation. Using data on manufacturing, services, construction, energy and agricultural output, this study tests whether this is the case for UK industry. Maximum likelihood estimation offers confirmation for manufacturing and construction output but evidence is much weaker in the cases of service, energy and agricultural sector output.