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Monetary Policy Analysis in a Small Open Economy using Bayesian Cointegrated Structural VARs

  • Villani, Mattias

    ()

    (Research Department, Central Bank of Sweden)

  • Warne, Anders

    ()

    (ECB)

Structural VARs have been extensively used in empirical macroeconomics during the last two decades, particularly in analyses of monetary policy. Existing Bayesian procedures for structural VARs are at best confined to a severly limited handling of cointegration restrictions. This paper extends the Bayesian analysis of structural VARs to cover cointegrated processes with an arbitrary number of cointegrating relations and general linear restrictions on the cointegration space. A reference prior distribution with an optional small open economy effect is proposed and a Gibbs sampler is derived for a straight-forward evaluation of the posterior distribution. The methods are used to analyze the e.ects of monetary policy in Sweden.

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Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 156.

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Length: 23 pages
Date of creation: 01 Dec 2003
Date of revision:
Handle: RePEc:hhs:rbnkwp:0156
Contact details of provider: Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
Web page: http://www.riksbank.com/
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  1. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
  2. Jacobson, Tor & Jansson, Per & Vredin, Anders & Warne, Anders, 2002. "Identifying the Effects of Monetary Policy Shocks in an Open Economy," Working Paper Series 134, Sveriges Riksbank (Central Bank of Sweden).
  3. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  4. Ben S. Bernanke, 1986. "Alternative Explanations of the Money-Income Correlation," NBER Working Papers 1842, National Bureau of Economic Research, Inc.
  5. Eric M. Leeper & Tao Zha, 2003. "Modest policy interventions," Working Paper 2003-24, Federal Reserve Bank of Atlanta.
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  7. David O. Cushman & Tao Zha, 1995. "Identifying monetary policy in a small open economy under flexible exchange rates," Working Paper 95-7, Federal Reserve Bank of Atlanta.
  8. Uhlig, Harald, 2005. "What are the effects of monetary policy on output? Results from an agnostic identification procedure," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 381-419, March.
  9. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1991. "Stochastic trends and economic fluctuations," Working Paper Series, Macroeconomic Issues 91-4, Federal Reserve Bank of Chicago.
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  12. Robert B. Litterman, 1985. "Forecasting with Bayesian vector autoregressions five years of experience," Working Papers 274, Federal Reserve Bank of Minneapolis.
  13. Gredenhoff, Mikael & Jacobson, Tor, 2001. "Bootstrap Testing Linear Restrictions on Cointegrating Vectors," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 63-72, January.
  14. Christopher A. Sims & Tao Zha, 1995. "Error bands for impulse responses," Working Paper 95-6, Federal Reserve Bank of Atlanta.
  15. Christopher A. Sims & Tao Zha, 1996. "Bayesian methods for dynamic multivariate models," Working Paper 96-13, Federal Reserve Bank of Atlanta.
  16. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
  17. Waggoner, Daniel F. & Zha, Tao, 2003. "Likelihood preserving normalization in multiple equation models," Journal of Econometrics, Elsevier, vol. 114(2), pages 329-347, June.
  18. Francis X. Diebold & Peter F. Christoffersen, 1997. "Cointegration and Long-Horizon Forecasting," IMF Working Papers 97/61, International Monetary Fund.
  19. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  20. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
  21. Waggoner, Daniel F. & Zha, Tao, 2003. "A Gibbs sampler for structural vector autoregressions," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 349-366, November.
  22. Lutkepohl, Helmut, 1990. "Asymptotic Distributions of Impulse Response Functions and Forecast Error Variance Decompositions of Vector Autoregressive Models," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 116-25, February.
  23. Villani, Mattias, 2005. "Bayesian Reference Analysis Of Cointegration," Econometric Theory, Cambridge University Press, vol. 21(02), pages 326-357, April.
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