IDEAS home Printed from https://ideas.repec.org/p/rbp/wpaper/2010-008.html
   My bibliography  Save this paper

The Effects Of Monetary Policy Shocks In Peru: Semi-Structural Identification Using A Factor-Augmented Vector Autoregressive Model

Author

Listed:
  • Lahura, Erick

    (Central Bank of Peru and LSE)

Abstract

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.

Suggested Citation

  • Lahura, Erick, 2010. "The Effects Of Monetary Policy Shocks In Peru: Semi-Structural Identification Using A Factor-Augmented Vector Autoregressive Model," Working Papers 2010-008, Banco Central de Reserva del Perú.
  • Handle: RePEc:rbp:wpaper:2010-008
    as

    Download full text from publisher

    File URL: http://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2010/Documento-de-Trabajo-08-2010.pdf
    File Function: Application/pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. 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.
    2. Fabio Milani & Francesco Belviso, 2003. "Structural Factor-Augmented VAR (SFAVAR)," Computing in Economics and Finance 2003 278, Society for Computational Economics.
    3. 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.
    4. James H. Stock & Mark W. Watson, 1998. "Diffusion Indexes," NBER Working Papers 6702, National Bureau of Economic Research, Inc.
    5. 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.
    6. Daniel L. Thornton, 1988. "The borrowed-reserves operating procedures: theory and evidence," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 30-54.
    7. Adrián Armas & Francisco Grippa, 2005. "Targeting Inflation in a Dollarized Economy: The Peruvian Experience," Research Department Publications 4423, Inter-American Development Bank, Research Department.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lahura, Erick, 2012. "Midiendo los efectos de la política monetaria a través de las expectativas de mercado," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 23, pages 39-52.
    2. Lahura, Erick, 2012. "Measuring the Effects of Monetary Policy Using Market Expectations," Working Papers 2012-005, Banco Central de Reserva del Perú.
    3. Castillo, Paul & Pérez, Fernando & Tuesta, Vicente, 2011. "Los mecanismos de transmisión de la política monetaria en Perú," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 21, pages 41-63.
    4. Winkelried, Diego, 2013. "Modelo de Proyección Trimestral del BCRP: Actualización y novedades," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 26, pages 9-60.

    More about this item

    Keywords

    VAR; FAVAR; Monetary Policy; Semi-Structural Identification.;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rbp:wpaper:2010-008. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Research Unit). General contact details of provider: http://edirc.repec.org/data/bcrgvpe.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.