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Transmission Channel Analysis in Dynamic Models

Author

Listed:
  • Enrico Wegner
  • Lenard Lieb
  • Stephan Smeekes
  • Ines Wilms

Abstract

We propose a framework for analysing transmission channels in a large class of dynamic models. We formulate our approach both using graph theory and potential outcomes, which we show to be equivalent. Our method, labelled Transmission Channel Analysis (TCA), allows for the decomposition of total effects captured by impulse response functions into the effects flowing through transmission channels, thereby providing a quantitative assessment of the strength of various well-defined channels. We establish that this requires no additional identification assumptions beyond the identification of the structural shock whose effects the researcher wants to decompose. Additionally, we prove that impulse response functions are sufficient statistics for the computation of transmission effects. We demonstrate the empirical relevance of TCA for policy evaluation by decomposing the effects of policy shocks arising from a variety of popular macroeconomic models.

Suggested Citation

  • Enrico Wegner & Lenard Lieb & Stephan Smeekes & Ines Wilms, 2024. "Transmission Channel Analysis in Dynamic Models," Papers 2405.18987, arXiv.org, revised May 2025.
    • Handle: RePEc:arx:papers:2405.18987
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    References listed on IDEAS

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    1. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148, Elsevier.
    2. Christina D. Romer & David H. Romer, 2004. "A New Measure of Monetary Shocks: Derivation and Implications," American Economic Review, American Economic Association, vol. 94(4), pages 1055-1084, September.
    3. Mark Gertler & Peter Karadi, 2015. "Monetary Policy Surprises, Credit Costs, and Economic Activity," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 44-76, January.
    4. Joshua D. Angrist & Òscar Jordà & Guido M. Kuersteiner, 2018. "Semiparametric Estimates of Monetary Policy Effects: String Theory Revisited," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 36(3), pages 371-387, July.
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