ESTIMATED THRESHOLDS IN THE RESPONSE OF OUTPUT TO MONETARY POLICY: ARE LARGE POLICY CHANGES LESS EFFECTIVE?

2013 ◽  
Vol 18 (1) ◽  
pp. 41-64 ◽  
Author(s):  
Luiggi Donayre
Keyword(s):  
Monetary Policy ◽  
Empirical Literature ◽  
Monetary Shocks ◽  
Cost Models ◽  
Monetary Policy Shocks ◽  
Policy Variable ◽  
Menu Cost ◽  
Policy Shocks ◽  
Unobserved Components Model ◽  
Effect Of Monetary Policy

This paper investigates the potential sources of the mixed evidence found in the empirical literature studying asymmetries in the response of output to monetary policy shocks of different magnitudes. Further, it argues that such mixed evidence is a consequence of the exogenous imposition of the threshold that classifies monetary shocks as small or large. To address this issue, I propose an unobserved-components model of output, augmented by a monetary policy variable, which allows the threshold to be endogenously estimated. The results show strong statistical evidence that the effect of monetary policy on output varies disproportionately with the size of the monetary shock once the threshold is estimated. Meanwhile, the estimates of the model are consistent with a key implication of menu-cost models: smaller monetary shocks trigger a larger response on output.

On the effects of monetary policy in Russia: The role of the space of spanned shocks and the policy regime shifts

2018 ◽  
pp. 33-55 ◽  
Author(s):  
A. A. Pestova
Keyword(s):  
Monetary Policy ◽  
Policy Instruments ◽  
Recursive Identification ◽  
Monetary Shocks ◽  
Monetary Policy Shocks ◽  
Vector Autoregressions ◽  
Policy Regime ◽  
Relative Contribution ◽  
Policy Shocks ◽  
Effect Of Monetary Policy

This paper investigates the influence of monetary policy shocks in Russia on the basic macroeconomic and financial indicators. To identify the shocks of monetary policy, the Bayesian approach to the estimation of vector autoregressions (VARs) is applied, followed by extraction of the unexplained dynamics of monetary policy instruments (shocks) using both recursive identification and sign restrictions approach. The estimates show that the monetary policy shocks, apparently, cannot be attributed to the key drivers of cyclical movements in Russia, as they explain only less than 10% of the output variation and from 5 to10% of the prices variation. When applying recursive identification, no restraining effect of monetary policy on prices is found. Respective impact on output is negative and statistically significant in all identification procedures employed; however, the relative contribution of monetary shocks to output is not large. In addition, no significant effect of monetary policy tightening on the stabilization of the ruble exchange rate was found.

Do monetary policy shocks generate TAR or STAR dynamics in output?

2015 ◽  
Vol 19 (2) ◽  
Author(s):  
Luiggi Donayre
Keyword(s):  
Monetary Policy ◽  
Model Comparison ◽  
Smooth Transition ◽  
Menu Costs ◽  
Monetary Policy Shocks ◽  
Threshold Autoregressive ◽  
Bayesian Model Comparison ◽  
Policy Variable ◽  
Policy Shocks ◽  
Unobserved Components Model

AbstractThis paper studies whether the relationship between monetary policy shocks of different size and output is better described by threshold autoregressive (TAR) or smooth transition autoregressive (STAR) dynamics. Using a Bayesian framework, a TAR process and a STAR process are formally compared within an unobserved components model of output, augmented with a monetary policy variable. The Bayesian model comparison favors the notion that the dynamics are nonlinear and better described by a smooth transition between regimes, which suggests that aggregation plays a role in the dynamics between monetary policy and output. This evidence is further supported by the results of a model that uses output data at the sectoral level: when more disaggregated data are employed, the transition between regimes is more abrupt. Moreover, the results show that, when the transition between regimes is smooth, large monetary policy shocks identified as the residuals of a VAR are neutral, consistent with the implications of menu-costs models.

scholarly journals Transmission of monetary policy shocks in small open emerging market economies

2021 ◽  
Vol 52 (4) ◽  
pp. 37-65
Author(s):  
M.Ye. Mamonov ◽  
◽  
A.A. Pestova ◽  
◽  
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Emerging Market ◽  
Emerging Market Economies ◽  
Monetary Shocks ◽  
Large Set ◽  
Monetary Policy Shocks ◽  
Market Economies ◽  
Policy Shocks ◽  
Transmission Of Monetary Policy

In this paper, we compare the transmission of monetary policy shocks using quarterly data for 13 emerging market economies (EMEs) with that in a benchmark advanced open economy, the United Kingdom, in the periods of inflation targeting (from 1990s onward). To estimate the transmission within a given country, we specify a monetary VAR-model and we extend it with a variable reflecting commodities terms of trade. We identify monetary policy shocks using a sign restriction scheme: a restrictive shock is determined as an unexpected rise of policy rate and reduction of inflation (CPI) and money demand (M2). We apply the Bayesian approach to estimating VARs to address the curse of dimensionality. Our results indicate that monetary policy in EMEs is not less efficient comparable to the U.K.: restrictive monetary shocks decrease inflation but also lead to a slowdown of GDP and stock market outflows. Overall, our findings add to the debate on the real effects of monetary policy surprises with a special attention to a large set of EMEs.

scholarly journals Pengaruh Guncangan Kebijakan Moneter dan Variabel Makro Terhadap Dana Pihak Ketiga (DPK) Bank Syariah di Indonesia

2017 ◽  
Vol 4 (8) ◽  
pp. 642
Author(s):  
Mohammad Abdul Adim ◽  
Raditya Sukmana
Keyword(s):  
Monetary Policy ◽  
Secondary Data ◽  
Islamic Banks ◽  
Monetary Policy Shocks ◽  
Financial Reports ◽  
Vector Autoregressive ◽  
Long Run ◽  
Policy Shocks ◽  
Short Run ◽  
Effect Of Monetary Policy

The purpose of this research is to find out the effect of monetary policy shocks and macro variables towards Islamic banks deposits. The method that used in this researc his quantitative method and also using secondary data which obtained from financial reports and other reports started from 2005 until the end of 2015. Analysis technique used is Johansen Cointegration and Vector Autoregressive (VAR). The result are monetary policy shocks have affect significant on deposits Islamic banks in long run and short run. Furthermore, variables macroeckonomic like GDP and CPI have effect significant on deposits in Islamic banks. interestingly, the money supply in the long run have significant effect on Islaimc banks deposits, but in the short run does not have a significant effect on the deposits of Islamic banks.

scholarly journals The role of foreign banks in the transmission of monetary policy: Empirical evidence from Tunisia

2021 ◽  
Vol 66 (228) ◽  
pp. 101-122
Author(s):  
Mohamed Gassouma ◽  
Kais Ben-Ahmed
Keyword(s):  
Monetary Policy ◽  
Concentration Index ◽  
Foreign Banks ◽  
Monetary Policy Shocks ◽  
Vector Autoregressive ◽  
Credit Supply ◽  
Policy Shocks ◽  
Monetary Policy Shock ◽  
Effect Of Monetary Policy ◽  
Transmission Of Monetary Policy

This paper presents an empirical analysis of the effect of monetary policy shocks on credit supply in Tunisia, using a vector autoregressive model and a nonlinear interactive model. The focus is on the magnitude of these shocks in the presence of foreign banks. The variables of interest are the concentration index of deposit banks, and monetary policy shocks based on the monthly data of 27 universal and business banks covering the period 1993 to 2016. The results support a positive and significant impact of concentration index on credit supply. However, monetary policy shocks appear to have no significant effect when the market is concentrated with the entry of foreign banks. The findings of this study also reveal that the entry of foreign banks neutralises monetary policy shock transmission in the credit supply, which may be offset by market discipline.

scholarly journals Impact of Monetary Policy Shocks on Macroeconomic Fundamentals: The Role of Asymmetry and Uncertainty in Nigeria

2019 ◽  
Vol 6 (11) ◽  
pp. 110-129
Author(s):  
LeeLee N. Deekor
Keyword(s):  
Monetary Policy ◽  
Developing Economies ◽  
Policy Instruments ◽  
Monetary Policy Shocks ◽  
Asymmetry Effect ◽  
Monetary Authorities ◽  
Policy Shocks ◽  
The Asymmetry ◽  
Effect Of Monetary Policy

That monetary policy is made in an environment of substantial uncertainty is only a commonplace knowledge. But for the peculiar vulnerability of monetary authorities to exogenous conditions in developing economies, we hypothesized for the role of uncertainty in the asymmetry effect of monetary policy. Essentially, we explore both money supply and interest rate process using linear and non-linear ARDL to show that political pressure such as variability in government borrowing has the potential to accelerate the asymmetry effect of monetary policy. We also observe the asymmetry effect of monetary policy to be sensitive to the choice of monetary policy indicator. These findings suggest that monetary authorities must consider not only the effectiveness or otherwise of monetary policy instruments to affect the target policy goals, but also the fact that not all the target variables react in a similar way to expansionary and contractionary monetary policy shocks.

scholarly journals Effect of Monetary Policy on Investment in Russian Regions

2021 ◽  
Vol 80 (4) ◽  
pp. 31-49
Author(s):  
Andrei Shevelev ◽  
◽  
Maria Kvaktun ◽  
Kristina Virovets ◽  
◽  
...  
Keyword(s):  
Monetary Policy ◽  
Russian Regions ◽  
Monetary Policy Shocks ◽  
Vector Autoregressions ◽  
Explanatory Factors ◽  
Market Rate ◽  
Policy Shocks ◽  
Monetary Policy Shock ◽  
Regional Product ◽  
Effect Of Monetary Policy

This paper assesses the effect of monetary policy on investment in Russian regions. In the first stage of the research, we estimate the responses of regional investment to interbank market rate shocks using structural vector autoregressions. In the second stage, we estimate regression models using impulse responses as dependent variables and explanatory factors as independent variables. The regression calculations are performed using the Elastic Net regularisation technique. We find that regions with higher shares of manufacturing, agriculture and construction are more responsive to monetary policy shocks. In addition, we identified the high importance of these sectors in explaining the different effects of monetary policy on investment. The results also show that the larger is the share of the mining and quarrying sector in the gross regional product (GRP) and the greater the imports to GRP ratio, the smaller is the absolute change in investment from a monetary policy shock.

SVAR (Mis)Identification and the Real Effects of Monetary Policy Shocks

2020 ◽  
Vol 12 (4) ◽  
pp. 1-32 ◽  
Author(s):  
Christian K. Wolf
Keyword(s):  
Monetary Policy ◽  
Empirical Literature ◽  
Monetary Policy Shocks ◽  
Taylor Rules ◽  
The Real ◽  
Real Effects ◽  
Policy Transmission ◽  
Policy Shocks ◽  
Jel C32 ◽  
Short Horizon

I argue that the seemingly disparate findings of the recent empirical literature on monetary policy transmission are all consistent with the same standard macro models. Weak sign restrictions, which suggest that contractionary monetary policy, if anything, boosts output, present as policy shocks what actually are expansionary demand and supply shocks. Classical zero restrictions are robust to such misidentification, but miss short-horizon effects. Two recent approaches—restrictions on Taylor rules and external instruments—instead work well. My findings suggest that empirical evidence is consistent with models in which the real effects of monetary policy are larger than commonly estimated. (JEL C32, E12, E32, E43, E52)

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