Identifying Monetary Policy Shocks viaChanges in Volatility
AbstractA 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 enoughinformation to fully identify monetary policy shocks. In fact, to compare different theories it would even be desirable to have over-identifying restrictions which would make statisticaltests of different theories possible. It is pointed out that some progress towards overidentifying 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 US data from 1965-1996 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 accommodatesdemand shocks to total reserves cannot be rejected.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1744.
Date of creation: 2006
Date of revision:
monetary policy; structural vector autoregressive analysis; vector autoregressive process; impulse responses;
Other versions of this item:
- Markku Lanne & Helmut Lütkepohl, 2008. "Identifying Monetary Policy Shocks via Changes in Volatility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(6), pages 1131-1149, 09.
- Markku Lanne, Helmut Luetkepohl, 2006. "Identifying Monetary Policy Shocks via Changes in Volatility," Economics Working Papers ECO2006/23, European University Institute.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-05 (All new papers)
- NEP-CBA-2006-08-05 (Central Banking)
- NEP-MAC-2006-08-05 (Macroeconomics)
- NEP-MON-2006-08-05 (Monetary Economics)
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