Test of new Keynesian view about asymmetric effects of monetary shocks on output in Iran: a Markov regime switching model

This paper investigates the first and second version of asymmetric effects of monetary shocks on output in Iran economy. The literature of this subject in new Keynesian view describes that because of imperfections of good, labor and credit markets, the effect of monetary shocks depend on their size and directions so the positive monetary shocks are neutral while negative monetary shocks are not. Furthermore, small and big monetary shocks have different effects on output. Findings of this study using Markov switching and Vector Autoregressive models imply that effect of negative shocks in output growth is greater than positive shocks and the latter can be neutral. Furthermore, according to new Keynesian notion, the results show that small monetary shocks have more effect than big shocks in Iran.