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Monetary Policy and Risk-Premium Shocks in Hungary: Results from a Large Bayesian VAR

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  • Ms. Adina Popescu
  • Ms. Alina Carare

Abstract

We document the transmission of monetary policy and risk-premium shocks in Hungary, by applying recent advances in the Bayesian estimation of large VAR models. The method allows extracting information from over 100 series, opening the "black box" of the transmission mechanism to provide the most comprehensive description to date of the impact of these two shocks on the economy under the inflation-targeting regime. We find novel evidence that most of the channels of transmission are operational in Hungary, in spite of large liability euroization and high foreign ownership of banks and corporations. Due to financial stability concerns, monetary policy responds procyclically to risk-premium shocks. We also find that the use of such a large panel of data improves inflation forecasting performance over smaller models and renders this model suitable for policy purposes.

Suggested Citation

  • Ms. Adina Popescu & Ms. Alina Carare, 2011. "Monetary Policy and Risk-Premium Shocks in Hungary: Results from a Large Bayesian VAR," IMF Working Papers 2011/259, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2011/259
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Christian Pinshi, 2020. "COVID-19 uncertainty and monetary policy," Working Papers hal-02566796, HAL.
    2. repec:agr:journl:v:2(591):y:2014:i:2(591):p:35-66 is not listed on IDEAS
    3. Regős, Gábor, 2013. "Kockázattal kiegészített Taylor-szabályok becslése Magyarországra [Estimation of risk-augmented Taylor rules for Hungary]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(6), pages 670-702.
    4. Katalin Szilágyi & Dániel Baksa & Jaromir Benes & Ágnes Horváth & Csaba Köber & Gábor D. Soós, 2013. "The Hungarian Monetary Policy Model," MNB Working Papers 2013/1, Magyar Nemzeti Bank (Central Bank of Hungary).
    5. repec:rej:journl:v:16:y:2013:i:47:p:57-74 is not listed on IDEAS
    6. Pellényi, Gábor, 2012. "A monetáris politika hatása a magyar gazdaságra. Elemzés strukturális, dinamikus faktormodellel [The sectoral effects of monetary policy in Hungary: a structural factor]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 263-284.
    7. PINSHI, Christian P., 2020. "Uncertainty, monetary policy and COVID-19," MPRA Paper 100147, University Library of Munich, Germany.
    8. Spulbăr Cristi & Niţoi Mihai, 2013. "Monetary Policy Transmission Mechanism in Romania Over the Period 2001 to 2012: A Bvar Analysis," Scientific Annals of Economics and Business, Sciendo, vol. 60(2), pages 1-12, December.
    9. Pinshi, Christian P., 2020. "Monetary policy, uncertainty and COVID-19," MPRA Paper 100836, University Library of Munich, Germany, revised 27 May 2020.
    10. Shabbir, Safia & Iqbal, Javed & Hameed, Saima, 2013. "Risk Premium, Interest Rate Differential, and Subsidized Lending in Pakistan," MPRA Paper 48250, University Library of Munich, Germany.

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