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Do Measures of Monetary Policy in a VAR Make Sense?

  • Rudebusch, G.D.

In many VARs, monetary policy shocks are identified with the least squares residuals from a regression of the federal funds rate on an assortment of variables. Such regressions appear to be structurally fragile and are at odds with other evidence on the nature of the Fed's reaction function; furthermore, the residuals from these regressions have little correlation with funds rate shocks that are derived from forward-looking financial markets.

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Paper provided by Banca Italia - Servizio di Studi in its series Papers with number 269.

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Length: 34 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:fth:banita:269
Contact details of provider: Postal: Banca d'Italia-Servizio Studi-Divisione Biblioteca e Pubblicazioni - Via N azionale, 91 -00184 Rome, Italy.
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