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Using Financial Markets To Estimate the Macro Effects of Monetary Policy:

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  • Pitschner, Stefan

    (Universitat Pompeu Fabra)

Abstract

In this paper, I use high-frequency financial market estimates to identify the monetary policy shock in a non-recursive 133 variable FAVAR. All restrictions are imposed exclusively on impact, and only on financial market variables. Using the economy's underlying factor structure as the link between its real and financial sides, I find that high-frequency responses contain valuable information about the behavior of lower-frequency macro variables. Even though the proposed identification scheme does not fall back on any of the standard (FA) VAR identifying assumptions, it confirms the classical finding that monetary policy has strong and significant delayed effects on real activity. I also obtain stock market responses that are compatible with the efficient market hypothesis and find that consumer prices react very little to monetary policy.

Suggested Citation

  • Pitschner, Stefan, 2013. "Using Financial Markets To Estimate the Macro Effects of Monetary Policy:," Working Paper Series 267, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0267
    as

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    File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2013/rap_wp267_130613.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary Policy; Impact Identication; FAVAR; Financial Markets; Efficient Market Hypothesis;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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