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Measuring the Stance of Monetary Policy in a Time-Varying World

Author

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  • Pérez-Forero, Fernando

    (Banco Central de Reserva del Perú)

Abstract

Knowing the stance of monetary policy is a general theme of interest for academics, policy makers and private sector agents. The mentioned stance is not necessarily observable, since the Fed have used different monetary instruments at different points in time. This paper provides a measure of this stance for the last forty five years, which is a weighted average of a pool of instruments. We extend Bernanke and Mihov (1998)'s Interbank Market model by allowing structural parameters and shock variances to change over time. In particular, we follow the recent work of Canova and Perez Forero (2015) for estimating non-recursive TVCVARs with Bayesian Methods. The estimated stance measure describes how tight/loose was monetary policy over time and takes into account the uncertainty related with posterior estimates of time varying parameters. Finally, we present how has monetary transmission mechanism changed over time, focusing our attention in the period after the Great Recession.

Suggested Citation

  • Pérez-Forero, Fernando, 2018. "Measuring the Stance of Monetary Policy in a Time-Varying World," Working Papers 2018-004, Banco Central de Reserva del Perú.
  • Handle: RePEc:rbp:wpaper:2018-004
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    More about this item

    Keywords

    SVARs; Interbank Market; Operating Procedures; Monetary Policy Stance; Time-varying parameters; Bayesian Methods; Multi-move Metropolis within Gibbs Sampling;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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

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