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On the evolution of the monetary policy transmission mechanism

  • Koop, Gary
  • Leon-Gonzalez, Roberto
  • Strachan, Rodney W.

This paper investigates whether the monetary transmission mechanism has changed or whether apparent changes are due to changes in the volatility of exogenous shocks. Also, the question of whether any changes have been gradual or abrupt is considered. A mixture innovation model is used which extends the class of time-varying vector autoregressive models with stochastic volatility. The advantage of our extension is that it allows us to estimate whether, where, when and how parameter change is occurring. Our empirical results indicate that the transmission mechanism, the volatility of exogenous shocks and the correlations between exogenous shocks are all changing.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 33 (2009)
Issue (Month): 4 (April)
Pages: 997-1017

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Handle: RePEc:eee:dyncon:v:33:y:2009:i:4:p:997-1017
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Giorgio E. Primiceri, 2005. "Time Varying Structural Vector Autoregressions and Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 821-852.
  2. Sangjoon Kim, Neil Shephard & Siddhartha Chib, . "Stochastic volatility: likelihood inference and comparison with ARCH models," Economics Papers W26, revised version of W, Economics Group, Nuffield College, University of Oxford.
  3. Llubos Pástor, 2001. "The Equity Premium and Structural Breaks," Journal of Finance, American Finance Association, vol. 56(4), pages 1207-1239, 08.
  4. J. Durbin, 2002. "A simple and efficient simulation smoother for state space time series analysis," Biometrika, Biometrika Trust, vol. 89(3), pages 603-616, August.
  5. Thomas A. Lubik & Frank Schorfheide, 2004. "Testing for Indeterminacy: An Application to U.S. Monetary Policy," American Economic Review, American Economic Association, vol. 94(1), pages 190-217, March.
  6. M. Hashem Pesaran & Davide Pettenuzzo & Allan Timmermann, 2004. "Forecasting Time Series Subject to Multiple Structural Breaks," CESifo Working Paper Series 1237, CESifo Group Munich.
  7. Boivin, Jean & Giannoni, Marc, 2006. "Has Monetary Policy Become More Effective?," CEPR Discussion Papers 5463, C.E.P.R. Discussion Papers.
  8. Gary Koop & Simon M. Potter, 2007. "Estimation and Forecasting in Models with Multiple Breaks," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 763-789.
  9. 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.
  10. Giordani, Paolo & Kohn, Robert, 2006. "Efficient Bayesian Inference for Multiple Change-Point and Mixture Innovation Models," Working Paper Series 196, Sveriges Riksbank (Central Bank of Sweden).
  11. Cogley, Timothy W. & Morozov, Sergei & Sargent, Thomas J., 2003. "Bayesian fan charts for UK inflation: Forecasting and sources of uncertainty in an evolving monetary system," CFS Working Paper Series 2003/44, Center for Financial Studies (CFS).
  12. John M. Maheu & Stephen Gordon, 2004. "Learning, Forecasting and Structural Breaks," Cahiers de recherche 0422, CIRPEE.
  13. Chib, Siddhartha, 1998. "Estimation and comparison of multiple change-point models," Journal of Econometrics, Elsevier, vol. 86(2), pages 221-241, June.
  14. Ben S. Bernanke & Ilian Mihov, 1995. "Measuring monetary policy," Working Papers in Applied Economic Theory 95-09, Federal Reserve Bank of San Francisco.
  15. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  16. Koop, Gary, 1996. "Parameter uncertainty and impulse response analysis," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 135-149.
  17. George, Edward I. & Sun, Dongchu & Ni, Shawn, 2008. "Bayesian stochastic search for VAR model restrictions," Journal of Econometrics, Elsevier, vol. 142(1), pages 553-580, January.
  18. James H. Stock & Mark W. Watson, 2001. "Vector Autoregressions," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 101-115, Fall.
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