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The Systematic Component of Monetary Policy in SVARs: An Agnostic Identification Procedure

  • Arias, Jonas E.

    (Board of Governors of the Federal Reserve System (U.S.))

  • Caldara, Dario

    (Board of Governors of the Federal Reserve System (U.S.))

  • Rubio-Ramirez, Juan F.

    (Duke University)

Following Leeper, Sims, and Zha (1996), we identify monetary policy shocks in SVARs by restricting the systematic component of monetary policy. In particular, we impose sign and zero restrictions only on the monetary policy equation. Since we do not restrict the response of output to a monetary policy shock, we are agnostic in Uhlig's (2005) sense. But, in contrast to Uhlig (2005), our results support the conventional view that a monetary policy shock leads to a decline in output. Hence, our results show that the contractionary effects of monetary policy shocks do not hinge on questionable exclusion restrictions.

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File URL: http://dx.doi.org/10.17016/IFDP.2015.1131
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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1131.

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Length: 40 pages
Date of creation: 12 Mar 2015
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Handle: RePEc:fip:fedgif:1131
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  1. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  2. Arias, Jonas E. & Rubio-Ramírez, Juan F. & Waggoner, Daniel F., 2014. "Inference Based on SVARs Identified with Sign and Zero Restrictions: Theory and Applications," Dynare Working Papers 30, CEPREMAP.
  3. Peersman, G. & Wagner, W.B., 2014. "Shocks to Bank Lending, Risk-Taking, Securitization, and Their Role for U.S. Business Cycle Fluctuations," Discussion Paper 2014-019, Tilburg University, Center for Economic Research.
  4. Waggoner, Daniel F. & Zha, Tao, 2003. "Likelihood preserving normalization in multiple equation models," Journal of Econometrics, Elsevier, vol. 114(2), pages 329-347, June.
  5. Paul Beaudry & Deokwoo Nam & Jian Wang, 2011. "Do Mood Swings Drive Business Cycles and is it Rational?," NBER Working Papers 17651, National Bureau of Economic Research, Inc.
  6. Uhlig, H.F.H.V.S., 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," Discussion Paper 1999-28, Tilburg University, Center for Economic Research.
  7. Michael T. Belongia & Peter N. Ireland, 2014. "Interest Rates and Money in the Measurement of Monetary Policy," NBER Working Papers 20134, National Bureau of Economic Research, Inc.
  8. Christiano, Lawrence J & Eichenbaum, Martin & Evans, Charles, 1996. "The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 16-34, February.
  9. Juan F. Rubio-Ramírez & Daniel F. Waggoner & Tao Zha, 2008. "Structural vector autoregressions: theory of identification and algorithms for inference," FRB Atlanta Working Paper 2008-18, Federal Reserve Bank of Atlanta.
  10. Andrew Binning, 2013. "Underidentified SVAR models: A framework for combining short and long-run restrictions with sign-restrictions," Working Paper 2013/14, Norges Bank.
  11. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  12. Henry W. Chappell, Jr. & Rob Roy McGregor & Todd A. Vermilyea, 2005. "Committee Decisions on Monetary Policy: Evidence from Historical Records of the Federal Open Market Committee," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033305, March.
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