Structural vector autoregressive models and monetary policy analysis
AbstractIn this paper, the structural vector autoregressive (SVAR) model is used to analyze short-run and contemporaneous relationships between monetary aggregates and other macroeconomic variables. This requires imposing restrictions on the correlation structure of the VAR residuals. Different approaches can be followed to serve this task. One approach is to use the Cholesky decomposition together with the assumption of a recursive structure of the contemporaneous relationships between the variables. Another approach uses the information given by the history of the variables (generalized impulse response functions). A third possibility is to adopt restrictions from economic theory. The purpose of this paper is to investigate the implications of the latter technique in a simple monetary framework for both Germany and the Euro area. VAR/VECM residuals are interpreted as deviations of the variables from their conditional expected values, which are also analyzed in a broad set of theoretical monetary models. The model used here builds upon the framework proposed by McCallum (1989) with an extension in order to consider the role of private banks in the money supply process. The implications of this model for impulse response analysis are discussed, and impulse responses for different models are calculated and compared to each other. --
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Bibliographic InfoPaper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2002,7.
Date of creation: 2002
Date of revision:
monetary policy; Impulse response analysis; IS-LM-AS model; structural vector autoregressive (SVAR) models;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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