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Exploring Monetary Policy Shocks with Large-Scale Bayesian VARs

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  • Dimitris Korobilis

Abstract

I introduce a high-dimensional Bayesian vector autoregressive (BVAR) framework designed to estimate the effects of conventional monetary policy shocks. The model captures structural shocks as latent factors, enabling computationally efficient estimation in high-dimensional settings through a straightforward Gibbs sampler. By incorporating time variation in the effects of monetary policy while maintaining tractability, the methodology offers a flexible and scalable approach to empirical macroeconomic analysis using BVARs, well-suited to handle data irregularities observed in recent times. Applied to the U.S. economy, I identify monetary shocks using a combination of high-frequency surprises and sign restrictions, yielding results that are robust across a wide range of specification choices. The findings indicate that the Federal Reserve's influence on disaggregated consumer prices fluctuated significantly during the 2022-24 high-inflation period, shedding new light on the evolving dynamics of monetary policy transmission.

Suggested Citation

  • Dimitris Korobilis, 2025. "Exploring Monetary Policy Shocks with Large-Scale Bayesian VARs," Papers 2505.06649, arXiv.org.
  • Handle: RePEc:arx:papers:2505.06649
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