The Effects Of Monetary Policy Shocks In Peru: Semi-Structural Identification Using A Factor-Augmented Vector Autoregressive Model
The main goal of this paper is to analyze the effects of monetary policy shocks in Peru, taking into account two important issues that have been addressed separately in the VAR literature. The first one is the difficulty to identify the most appropriate indicator of monetary policy stance, which is usually assumed rather than determined from an estimated model. The second one is the fact that monetary policy decisions are based on the analysis of a wide range of economic and financial data, which is at odds with the small number of variables specified in most VAR models. To overcome the first issue, Bernanke and Mihov (1998) proposed a semi-structural VAR model from which the indicator of monetary policy stance can be derived rather than assumed. Meanwhile, the data problem has been resolved recently by Bernanke, Boivin and Eliasz (2005) using a Factor-Augmented Vector Autoregressive (FAVAR) model. In order to capture these two issues simultaneously, we propose an extension of the FAVAR model that incorporates a semi-structural identification approach a la Bernanke and Mihov, resulting in a VAR model that we denominate SS-FAVAR. Using data for Peru, the results show that the SS-FAVAR's impulse-response functions (IRFs) provide a more coherent picture of the effects of monetary policy shocks compared to the IRFs of alternative VAR models. Furthermore, it is found that innovations to nonborrowed reserves can be identified as monetary policy shocks for the period 1995-2003.
|Date of creation:||Jul 2010|
|Contact details of provider:|| Postal: Jr. Miro Quesada 441, Lima|
Phone: 427-6250 ext. 3841
Web page: http://www.bcrp.gob.pe
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Armas, Adrián & Grippa, Francisco & Quispe, Zenón & Valdivia, Luis, 2001. "De metas monetarias a metas de inflación en una economía con dolarización parcial: El caso peruano," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 7.
- Gordon, David B & Leeper, Eric M, 1994.
"The Dynamic Impacts of Monetary Policy: An Exercise in Tentative Identification,"
Journal of Political Economy,
University of Chicago Press, vol. 102(6), pages 1228-1247, December.
- David B. Gordon & Eric M. Leeper, 1992. "The dynamic impacts of monetary policy: an exercise in tentative identification," FRB Atlanta Working Paper 92-13, Federal Reserve Bank of Atlanta.
- David B. Gordon & Eric M. Leeper, 1993. "The dynamic impacts of monetary policy: an exercise in tentative identification," FRB Atlanta Working Paper 93-5, Federal Reserve Bank of Atlanta.
- 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.
- Adrián Armas & Francisco Grippa, 2005. "Targeting Inflation in a Dollarized Economy: The Peruvian Experience," IDB Publications (Working Papers) 6827, Inter-American Development Bank.
- Adrián Armas & Francisco Grippa, 2005. "Targeting Inflation in a Dollarized Economy: The Peruvian Experience," Research Department Publications 4423, Inter-American Development Bank, Research Department.
- Fabio Milani & Francesco Belviso, 2003. "Structural Factor-Augmented VAR (SFAVAR)," Computing in Economics and Finance 2003 278, Society for Computational Economics.
- James H. Stock & Mark W. Watson, 1998. "Diffusion Indexes," NBER Working Papers 6702, National Bureau of Economic Research, Inc.
- Daniel L. Thornton, 1988. "The borrowed-reserves operating procedures: theory and evidence," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 30-54. Full references (including those not matched with items on IDEAS)