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Drifts and volatilities under measurement error: Assessing monetary policy shocks over the last century

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  • Pooyan Amir‐Ahmadi
  • Christian Matthes
  • Mu‐Chun Wang

Abstract

How much have the dynamics of U.S. time series changed over the last century? Has the evolution of the Federal Reserve as an institution over the 100 years altered the transmission of monetary policy shocks? To tackle these questions, we build a multivariate time series model with time‐varying parameters and stochastic volatility that features measurement errors in observables. We find substantial changes in the structure of the economy. There is also large variation in the impact of monetary policy shocks, but the majority of this variation is driven by changes in exogenous volatility.

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  • Pooyan Amir‐Ahmadi & Christian Matthes & Mu‐Chun Wang, 2016. "Drifts and volatilities under measurement error: Assessing monetary policy shocks over the last century," Quantitative Economics, Econometric Society, vol. 7(2), pages 591-611, July.
  • Handle: RePEc:wly:quante:v:7:y:2016:i:2:p:591-611
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    Cited by:

    1. Pooyan Amir-Ahmadi & Christian Matthes & Mu-Chun Wang, 2020. "Choosing Prior Hyperparameters: With Applications to Time-Varying Parameter Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 38(1), pages 124-136, January.
    2. Amir-Ahmadi, Pooyan & Matthes, Christian & Wang, Mu-Chun, 2017. "Measurement errors and monetary policy: Then and now," Journal of Economic Dynamics and Control, Elsevier, vol. 79(C), pages 66-78.
    3. Aruoba, S. Borağan & Bocola, Luigi & Schorfheide, Frank, 2017. "Assessing DSGE model nonlinearities," Journal of Economic Dynamics and Control, Elsevier, vol. 83(C), pages 34-54.
    4. Taeyoung Doh, 2017. "Trend and Uncertainty in the Long-Term Real Interest Rate: Bayesian Exponential Tilting with Survey Data," Research Working Paper RWP 17-8, Federal Reserve Bank of Kansas City.
    5. Victor Pontines, 2021. "The real effects of loan-to-value limits: empirical evidence from Korea," Empirical Economics, Springer, vol. 61(3), pages 1311-1350, September.
    6. Pooyan Amir-Ahmadi & Christian Matthes & Mu-Chun Wang, 2016. "Choosing Prior Hyperparameters," Working Paper 16-9, Federal Reserve Bank of Richmond.
    7. Solikin M. Juhro & Paresh K. Narayan & Bernard N. Iyke, 2019. "Understanding Monetary And Fiscal Policy Rule Interactions In Indonesia," Working Papers WP/01/2019, Bank Indonesia.
    8. Baumeister, Christiane & Hamilton, James D., 2021. "Reprint: Drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions," Journal of International Money and Finance, Elsevier, vol. 114(C).
    9. Michał Rubaszek & Karol Szafranek, 2022. "Have European natural gas prices decoupled from crude oil prices? Evidence from TVP-VAR analysis," Working Papers 2022-078, Warsaw School of Economics, Collegium of Economic Analysis.
    10. Horvath, Jaroslav, 2020. "Macroeconomic disasters and the equity premium puzzle: Are emerging countries riskier?," Journal of Economic Dynamics and Control, Elsevier, vol. 112(C).
    11. Thomas A. Lubik & Christian Matthes & Andrew Owens, 2016. "Beveridge Curve Shifts and Time-Varying Parameter VARs," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 197-226.
    12. Jansson, Walter, 2018. "Stock markets, banks and economic growth in the UK, 1850–1913," Financial History Review, Cambridge University Press, vol. 25(3), pages 263-296, December.
    13. Njindan Iyke, Bernard, 2016. "Are Monetary Policy Disturbances Important in Ghana? Some Evidence from Agnostic Identification," MPRA Paper 70205, University Library of Munich, Germany.
    14. Laura Liu & Christian Matthes & Katerina Petrova & Jessica Sackett Romero, 2019. "Monetary Policy across Space and Time," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, issue August.
    15. Baumeister, Christiane & Hamilton, James D., 2020. "Drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions," Journal of International Money and Finance, Elsevier, vol. 109(C).
    16. Aymeric Ortmans, 2020. "Evolving Monetary Policy in the Aftermath of the Great Recession," Documents de recherche 20-01, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    17. Victor Pontines, 0. "The real effects of loan-to-value limits: empirical evidence from Korea," Empirical Economics, Springer, vol. 0, pages 1-40.
    18. Thomas A. Lubik & Christian Matthes, 2015. "Time-Varying Parameter Vector Autoregressions: Specification, Estimation, and an Application," Economic Quarterly, Federal Reserve Bank of Richmond, issue 4Q, pages 323-352.

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