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Monetary policy misspecification in VAR models

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  • Fabio Canova

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  • Joaquim Pires Pina

Abstract

We examine the effects of extracting monetary policy disturbances with semi-structural and structural VARs, using data generated by a limited participation model under partial accommodative and feedback rules. We find that, in general, misspecification is substantial: short run coefficients often have wrong signs; impulse responses and variance decompositions give misleading representations of the dynamics. Explanations for the results and suggestions for macroeconomic practice are provided.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 420.

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Date of creation: Oct 1998
Date of revision: Sep 1999
Handle: RePEc:upf:upfgen:420

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Web page: http://www.econ.upf.edu/

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Keywords: General equilibrium; monetary policy; identification; structural VARs;

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