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What caused the early millennium slowdown? Evidence based on vector autoregressions

  • Gert Peersman

This paper uses a number of simple VAR models for the industrialised world, the United States and the euro area respectively to analyse the underlying shocks that may have caused the recent slowdown. The results of two identification strategies are compared. One is based on traditional zero restrictions and, as an alternative, an identification scheme based on more recent sign restrictions is proposed. The main conclusion is that the recent slowdown was caused by a combination of several shocks: a negative aggregate supply and aggregate spending shock, the increase of oil prices in 1999, and restrictive monetary policy in 2000. These shocks were more pronounced in the United States than the euro area. The results are somewhat different depending on the identification strategy. It is illustrated that traditional zero restrictions can have an influence on the estimated impact of certain shocks.

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Paper provided by Bank of England in its series Bank of England working papers with number 272.

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Date of creation: Sep 2005
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Handle: RePEc:boe:boeewp:272
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  16. Canova, Fabio & Pina, Joaquim Pivis, 1999. "Monetary Policy Misspecification in VAR Models," CEPR Discussion Papers 2333, C.E.P.R. Discussion Papers.
  17. Peersman, Gert & Smets, Frank, 2001. "The monetary transmission mechanism in the euro area: more evidence from VAR analysis," Working Paper Series 0091, European Central Bank.
  18. Jon Faust, 1998. "The robustness of identified VAR conclusions about money," International Finance Discussion Papers 610, Board of Governors of the Federal Reserve System (U.S.).
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