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Estimating the impact of the volatility of shocks: a structural VAR approach

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  • Haroon Mumtaz

    (Bank of England)

Abstract

A large empirical literature has examined the transmission mechanism of structural shocks in great detail. The possible role played by changes in the volatility of shocks has largely been overlooked in vector autoregression based applications. This paper proposes an extended vector autoregression where the volatility of structural shocks is allowed to be time-varying and to have a direct impact on the endogenous variables included in the model. The proposed model is applied to US data to consider the potential impact of changes in the volatility of monetary policy shocks. The results suggest that while an increase in this volatility has a statistically significant impact on GDP growth and inflation, the relative contribution of these shocks to the forecast error variance of these variables is estimated to be small.

Suggested Citation

  • Haroon Mumtaz, 2011. "Estimating the impact of the volatility of shocks: a structural VAR approach," Bank of England working papers 437, Bank of England.
    • Handle: RePEc:boe:boeewp:0437
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    References listed on IDEAS

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    12. Haroon Mumtaz & Paolo Surico, 2009. "The Transmission of International Shocks: A Factor‐Augmented VAR Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 71-100, February.
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    15. Haroon Mumtaz & Laura Sunder-Plassmann, 2010. "Time-varying dynamics of the real exchange rate. A structural VAR analysis," Bank of England working papers 382, Bank of England.
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    Cited by:

    1. Stephen Millard & Tamarah Shakir, 2013. "Oil shocks and the UK economy: the changing nature of shocks and impact over time," Bank of England working papers 476, Bank of England.
    2. Hassan Tawakol A. Fadol, 2020. "Estimating the Impact of the Macroeconomic Indicators Shocks on KSA Non-oil Exports 1970-2019: (SVAR) Analysis and (NARDL) Assessment," International Journal of Economics and Financial Issues, Econjournals, vol. 10(6), pages 118-128.
    3. Vivek Sharma & Edgar Silgado-Gómez, 2019. "Sovereign Spread Volatility and Banking Sector," CEIS Research Paper 454, Tor Vergata University, CEIS, revised 08 Mar 2019.

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    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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