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Information from financial markets and VAR measures of monetary policy

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  • Fabio C. Bagliano
  • Carlo A. Favero

Abstract

Exogenous measures of monetary policy shocks, directly derived from financial market information, are used in close (US) and open (US-Germany) economy VAR models to evaluate the robustness of the dynamic effect of monetary policy obtained from traditional identified VAR. The empirical analysis confirms the main features of the monetary policy transmission mechanism in US and Germany, explicitly addressing the issue of simultaneity between the German policy interest rate and the US dollar-DMark exchange rate.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 135.

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Handle: RePEc:igi:igierp:135

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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. Soderlind, Paul & Svensson, Lars, 1997. "New techniques to extract market expectations from financial instruments," Journal of Monetary Economics, Elsevier, vol. 40(2), pages 383-429, October.
  3. Rudebusch, G.D., 1996. "Do Measures of Monetary Policy in a VAR Make Sense?," Papers 269, Banca Italia - Servizio di Studi.
  4. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 869-902, August.
  5. Martin Eichenbaum & Charles L. Evans, 1993. "Some Empirical Evidence on the Effects of Monetary Policy Shocks on Exchange Rates," NBER Working Papers 4271, National Bureau of Economic Research, Inc.
  6. Allan D. Brunner, 1996. "Using measures of expectations to identify the effects of a monetary policy shock," International Finance Discussion Papers 537, Board of Governors of the Federal Reserve System (U.S.).
  7. Vittorio Grilli & Nouriel Roubini, 1995. "Liquidity Models in Open Economies: Theory and Empirical Evidence," Working Papers 95-16, New York University, Leonard N. Stern School of Business, Department of Economics.
  8. 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.
  9. Lars E.O. Svensson, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992 - 1994," NBER Working Papers 4871, National Bureau of Economic Research, Inc.
  10. Fabio C. Bagliano & Carlo A. Favero, . "Measuring Monetary Policy with VAR Models: an Evaluation," Working Papers 132, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  11. Bagliano, Fabio-Cesare & Favero, Carlo A & Franco, Francesco, 1999. "Measuring Monetary Policy in Open Economies," CEPR Discussion Papers 2079, C.E.P.R. Discussion Papers.
  12. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The effects of monetary policy shocks: evidence from the flow of funds," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
  13. 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.
  14. David O. Cushman & Tao Zha, 1995. "Identifying monetary policy in a small open economy under flexible exchange rates," Working Paper 95-7, Federal Reserve Bank of Atlanta.
  15. Lars E. O. Svensson, 1994. "Estimating and Interpreting Forward Interest Rates," IMF Working Papers 94/114, International Monetary Fund.
  16. Frank Smets, 1997. "Measuring monetary policy shocks in France, Germany and Italy: The role of the exchange rate," BIS Working Papers 42, Bank for International Settlements.
  17. Eichenbaum, Martin & Evans, Charles L, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 975-1009, November.
  18. Grilli, Vittorio & Roubini, Nouriel, 1992. "Liquidity and exchange rates," Journal of International Economics, Elsevier, vol. 32(3-4), pages 339-352, May.
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