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Canadian monetary policy analysis using a structural VARMA model

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This paper builds a structural VARMA (SVARMA) model for investigating Canadian monetary policy. Using the scalar component model (SCM) methodology proposed by Athanasopoulos and Vahid (2008a), we first identify a VARMA model and then construct a SVARMA for Canadian monetary policy. We include a SVAR model in our study for the purpose of comparison and we generate impulse responses along with 68% confidence bands for both models. Relative to the SVAR, the impulse responses generated by the SVARMA appear to be consistent with those predicted by various economic theoretical models and solve the economic puzzles found commonly in the empirical literature on monetary policy. The successful construction and implementation of the SVARMA model for Canadian monetary policy analysis, along with its promising impulse responses and superior out-of-sample forecasting performance of its reduced form compared to the VAR alternatives, indicates the suitability of this framework for small open economies.

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  • Raghavan, Mala & Athanasopoulos, George & Silvapulle, Param, 2014. "Canadian monetary policy analysis using a structural VARMA model," Working Papers 2014-06, University of Tasmania, Tasmanian School of Business and Economics, revised 2014.
    • Handle: RePEc:tas:wpaper:17834
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    Cited by:

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    2. Bernd Funovits, 2019. "Identification and Estimation of SVARMA models with Independent and Non-Gaussian Inputs," Papers 1910.04087, arXiv.org.
    3. Xu Xiaojie, 2018. "Using Local Information to Improve Short-Run Corn Price Forecasts," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 16(1), pages 1-15, January.
    4. Georgiadis, Georgios & Jančoková, Martina, 2020. "Financial globalisation, monetary policy spillovers and macro-modelling: Tales from 1001 shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 121(C).
    5. Guido Turnip, 2017. "Identification of Small Open Economy SVARs via Markov-Switching Heteroskedasticity," The Economic Record, The Economic Society of Australia, vol. 93(302), pages 465-483, September.
    6. Raghavan, Mala & Athanasopoulos, George, 2019. "Analysis of shock transmissions to a small open emerging economy using a SVARMA model," Economic Modelling, Elsevier, vol. 77(C), pages 187-203.
    7. Bernd Funovits, 2020. "Identifiability and Estimation of Possibly Non-Invertible SVARMA Models: A New Parametrisation," Papers 2002.04346, arXiv.org, revised Feb 2021.
    8. Bhattacharya, Rudrani & Tripathi, Shruti & Chowdhury, Sahana Roy, 2019. "Financial structure, institutional quality and monetary policy transmission: A Meta-Analysis," Working Papers 19/274, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    VARMA models; Identification; Impulse responses; Confidence band; Open economy; Transmission mechanism.Note:;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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