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Identifying Monetary Policy Shocks via Changes in Volatility

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Author Info
MARKKU LANNE
HELMUT LÜTKEPOHL

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Abstract

A central issue of monetary policy analysis is the specification of monetary policy shocks. In a structural vector autoregressive setting there has been some controversy about which restrictions to use for identifying the shocks because standard theories do not provide enough information to fully identify monetary policy shocks. In fact, to compare different theories it would even be desirable to have over-identifying restrictions that would make statistical tests of different theories possible. It is pointed out that some progress toward over-identifying monetary policy shocks can be made by using specific data properties. In particular, it is shown that changes in the volatility of the shocks can be used for identification. Based on monthly U.S. data from 1965 to 1996 different theories are tested and it is found that associating monetary policy shocks with shocks to nonborrowed reserves leads to a particularly strong rejection of the model whereas assuming that the Fed accommodates demand shocks to total reserves cannot be rejected. Copyright (c) 2008 The Ohio State University.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2008.00151.x
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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 40 (2008)
Issue (Month): 6 (09)
Pages: 1131-1149
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Handle: RePEc:mcb:jmoncb:v:40:y:2008:i:6:p:1131-1149

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bernanke, Ben S. & Mihov, Ilian, 1998. "The liquidity effect and long-run neutrality," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 149-194, December. [Downloadable!] (restricted)
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  2. Benkwitz, Alexander & Lütkepohl, Helmut & Wolters, Jürgen, 1999. "Comparison of Bootstrap Confidence Intervals for Impulse Responses of German Monetary Systems," CEPR Discussion Papers 2208, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Candelon, Bertrand & Lutkepohl, Helmut, 2001. "On the reliability of Chow-type tests for parameter constancy in multivariate dynamic models," Economics Letters, Elsevier, vol. 73(2), pages 155-160, November. [Downloadable!] (restricted)
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  4. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1998. "Monetary Policy Shocks: What Have We Learned and to What End?," NBER Working Papers 6400, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, 09. [Downloadable!] (restricted)
  6. repec:cup:macdyn:v:5:y:2001:i:1:p:81-100 is not listed on IDEAS
  7. Lawrence J. Christiano & Martin Eichenbaum, 1991. "Identification and the Liquidity Effect of a Monetary Policy Shock," NBER Working Papers 3920, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September. [Downloadable!] (restricted)
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  1. Alexander Kriwoluzky, 2009. "Matching Theory and Data: Bayesian Vector Autoregression and Dynamic Stochastic General Equilibrium Models," Economics Working Papers ECO2009/29, European University Institute. [Downloadable!]
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  2. Helmut Luetkepohl & Fang Xu, 2009. "The Role of the Log Transformation in Forecasting Economic Variables," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. Markku Lanne & Helmut Luetkepohl & Katarzyna Maciejowska, 2009. "Structural Vector Autoregressions with Markov Switching," Economics Working Papers ECO2009/06, European University Institute. [Downloadable!]
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