Temporal asymmetries in monetary transmission: Implications for interest rate policies

Abstract

When calibrating interest rate adjustments, central banks rely on models that treat tightening and easing as mirror images — yet transmission mechanisms may differ fundamentally across policy directions and time horizons. Using monthly U.S. data (1994–2024) and the NARDL framework, we document a systematic temporal reversal: Treasury yields at short-to-intermediate maturities respond more strongly to rate hikes in the short run, but this reverses in the long run where cuts generate greater ultimate adjustment, with asymmetry strengthening across the maturity spectrum. This temporal reversal is robust across crisis episodes, credit risk controls, and unconventional policy periods. Findings provide concrete advisory guidance: during easing cycles, policymakers should front-load cuts or sustain accommodation to offset delayed transmission; during tightening, lower long-run pass-through relative to easing implies larger hikes may be needed to achieve equivalent ultimate impact on yields. Differentiated communication strategies are warranted across policy cycle phases.