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A Statistical Comparison of Alternative Identification Schemes for Monetary Policy Shocks

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  • Markku Lanne
  • Helmut Luetkepohl

Abstract

Different identification schemes for monetary policy shocks have been proposed in the literature. They typically specify just-identifying restrictions in a standard structural vector autoregressive (SVAR) framework. Thus, in this framework the different schemes cannot be checked against the data with statistical tests. We consider different approaches how to use the data properties to augment the standard SVAR setup for identifying the shocks. Thereby it becomes possible to test models which are just identified in a standard setting. For monthly US data it is found that a model where monetary shocks are induced via the federal funds rate is the only one which cannot be rejected when the data properties are used for identification.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2008/23.

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Date of creation: 2008
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Handle: RePEc:eui:euiwps:eco2008/23

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Keywords: Mixed normal distribution; structural vector autoregressive model; vector autoregressive process;

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References

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  1. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
  2. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
  3. Markku Lanne & Helmut Luetkepohl, 2006. "Structural Vector Autoregressions with Nonnormal Residuals," CESifo Working Paper Series 1651, CESifo Group Munich.
  4. Bernanke, Ben S. & Mihov, Ilian, 1995. "Measuring Monetary Policy," Economics Series 10, Institute for Advanced Studies.
  5. Christopher A. Sims & Tao Zha, 2004. "Were there regime switches in U.S. monetary policy?," Working Paper 2004-14, Federal Reserve Bank of Atlanta.
  6. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 1997. "Monetary policy shocks: what have we learned and to what end?," Working Paper Series, Macroeconomic Issues WP-97-18, Federal Reserve Bank of Chicago.
  7. Markku Lanne, Helmut Luetkepohl, 2006. "Identifying Monetary Policy Shocks via Changes in Volatility," Economics Working Papers ECO2006/23, European University Institute.
  8. Strongin, Steven, 1995. "The identification of monetary policy disturbances explaining the liquidity puzzle," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 463-497, June.
  9. 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.
  10. Ben S. Bernanke & Alan S. Blinder, 1989. "The federal funds rate and the channels of monetary transmission," Working Papers 89-10, Federal Reserve Bank of Philadelphia.
  11. Roberto Rigobon & Brian Sack, 2001. "Measuring the Reaction of Monetary Policy to the Stock Market," NBER Working Papers 8350, National Bureau of Economic Research, Inc.
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Cited by:
  1. Helmut Lütkepohl & Anton Velinov, 2014. "Structural Vector Autoregressions: Checking Identifying Long-run Restrictions via Heteroskedasticity," Discussion Papers of DIW Berlin 1356, DIW Berlin, German Institute for Economic Research.

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