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)

scholarly journals Are the Effects of Monetary Policy Shocks Big or Small?

2012 ◽  
Vol 4 (2) ◽  
pp. 1-32 ◽  
Author(s):  
Olivier Coibion
Keyword(s):  
Monetary Policy ◽  
Monetary Policy Shocks ◽  
Taylor Rules ◽  
The Real ◽  
Real Effects ◽  
Policy Shocks ◽  
Monetary Policy Shock ◽  
Historical Contribution

This paper studies the small estimated effects of monetary policy shocks from standard VARs versus the large effects from the Romer and Romer (2004) approach. The differences are driven by three factors: the different contractionary impetus, the period of reserves targeting, and lag length selection. Accounting for these factors, the real effects of policy shocks are consistent across approaches and most likely medium. Alternative monetary policy shock measures from estimated Taylor rules also yield medium-sized real effects and indicate that the historical contribution of monetary policy shocks to real fluctuations has been significant, particularly during the 1970s and early 1980s. (JEL E32, E43, E52)

REAL EFFECTS OF MONETARY POLICY IN LARGE EMERGING ECONOMIES

2011 ◽  
Vol 16 (S2) ◽  
pp. 190-212 ◽  
Author(s):  
Sushanta K. Mallick ◽  
Ricardo M. Sousa
Keyword(s):  
Monetary Policy ◽  
Emerging Market ◽  
Monetary Policy Shocks ◽  
Equity Prices ◽  
Real Effects ◽  
Interest Rate Shocks ◽  
Policy Transmission ◽  
Policy Shocks ◽  
Negative Effect ◽  
Alternative Identification

This paper provides evidence on monetary policy transmission for five key emerging market economies: Brazil, Russia, India, China, and South Africa. Monetary policy (interest rate) shocks are identified using modern Bayesian methods along with the more recent sign restrictions approach. We find that contractionary monetary policy has a strong and negative effect on output. We also show that such contractionary monetary policy shocks do tend to stabilize inflation in these countries in the short term, while producing a strongly persistent negative effect on real equity prices. Overall, the impulse responses are robust to the alternative identification procedures.

scholarly journals Monetary Policy Surprises, Credit Costs, and Economic Activity

2015 ◽  
Vol 7 (1) ◽  
pp. 44-76 ◽  
Author(s):  
Mark Gertler ◽  
Peter Karadi
Keyword(s):  
Monetary Policy ◽  
High Frequency ◽  
Monetary Policy Shocks ◽  
Var Analysis ◽  
Financial Variables ◽  
Forward Guidance ◽  
Policy Transmission ◽  
Policy Shocks ◽  
Term Premia ◽  
Transmission Of Monetary Policy

We provide evidence on the transmission of monetary policy shocks in a setting with both economic and financial variables. We first show that shocks identified using high frequency surprises around policy announcements as external instruments produce responses in output and inflation that are typical in monetary VAR analysis. We also find, however, that the resulting “modest” movements in short rates lead to “large” movements in credit costs, which are due mainly to the reaction of both term premia and credit spreads. Finally, we show that forward guidance is important to the overall strength of policy transmission. (JEL E31, E32, E43, E44, E52, G01)

scholarly journals Non-linearities, state-dependent prices and the transmission mechanism of monetary policy

2021 ◽  
Author(s):  
Guido Ascari ◽  
Timo Haber
Keyword(s):  
Monetary Policy ◽  
Price Level ◽  
Transmission Mechanism ◽  
Monetary Policy Shocks ◽  
Real Effects ◽  
State Dependent ◽  
Trend Inflation ◽  
Policy Shocks ◽  
Linear Effects ◽  
State Dependent Pricing

Abstract A sticky price theory of the transmission mechanism of monetary policy shocks based on state-dependent pricing yields two testable implications, that do not hold in time-dependent models. First, large monetary policy shocks should yield proportionally larger initial responses of the price level. Second, in a high trend inflation regime, the response of the price level to monetary policy shocks should be larger and real effects smaller. Our analysis provides evidence supporting these non-linear effects in the response of the price level in aggregate US data, indicating state-dependent pricing as an important feature of the transmission mechanism of monetary policy.

scholarly journals Fixed-Wage Contracts and Monetary Non-neutrality

2019 ◽  
Vol 11 (2) ◽  
pp. 171-192 ◽  
Author(s):  
Maria Björklund ◽  
Mikael Carlsson ◽  
Oskar Nordström Skans
Keyword(s):  
Monetary Policy ◽  
Transmission Mechanism ◽  
Seasonal Patterns ◽  
Micro Data ◽  
Monetary Policy Shocks ◽  
Policy Transmission ◽  
Wage Contracts ◽  
Policy Shocks ◽  
Fixed Wage ◽  
Monetary Policy Transmission Mechanism

We study the importance of wage rigidities for the monetary policy transmission mechanism. Using uniquely rich micro data on Swedish wage negotiations, we isolate periods when the labor market is covered by fixed-wage contracts. Importantly, negotiations are coordinated in time but their seasonal patterns are far from deterministic. Using a two-regime VAR model, we document that monetary policy shocks have a larger impact on production during fixed-wage episodes as compared to the average response. The results do not seem to be driven by the periodic structure, nor the seasonality, of the renegotiation episodes. (JEL E23, E24, E52, J31, J41)

scholarly journals Shadow banks and the risk-taking channel of monetary policy transmission in the euro area

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Arina Wischnewsky ◽  
Matthias Neuenkirch
Keyword(s):  
Monetary Policy ◽  
Euro Area ◽  
Risk Taking ◽  
Banking Sector ◽  
Shadow Banking ◽  
Monetary Policy Transmission ◽  
Monetary Policy Shocks ◽  
Shadow Banks ◽  
Policy Transmission ◽  
Policy Shocks

AbstractWe provide evidence for a risk-taking channel of monetary policy transmission in the euro area that works through an increase in shadow banks’ total asset growth and their risk assets ratio. Our dataset covers the period 2000Q1–2018Q3 and includes, in addition to the standard variables for real GDP growth, inflation, and the monetary policy stance, the aforementioned two indicators for the shadow banking sector. Based on vector autoregressive models for the euro area as a whole, we find a portfolio reallocation effect towards riskier assets and evidence for a general expansion of assets. Both effects last for roughly six quarters in the case of conventional monetary policy shocks, whereas for unconventional monetary policy shocks the responses are significant for two quarters only. Country-specific as well as sector-specific estimations confirm these findings for most of the euro area countries and all non-bank types, but also reveal some heterogeneity in the reaction of financial institutions.

scholarly journals Sectoral Effects of Monetary Policy: Evidence from Pakistan

2006 ◽  
Vol 45 (4II) ◽  
pp. 1103-1115 ◽  
Author(s):  
Tasneem Alam ◽  
Muhammad Waheed
Keyword(s):  
Monetary Policy ◽  
Transmission Mechanism ◽  
Monetary Shocks ◽  
Monetary Policy Shocks ◽  
Monetary Policies ◽  
Policy Makers ◽  
Regional Effects ◽  
Real Effects ◽  
Policy Shocks ◽  
Short Run

Does monetary policy have economically significant effects on the real output? Historically, economists have tended to hold markedly different views with regard to this question. In recent times, however, there seems to be increasing consensus among monetary economists and policy-makers that monetary policy does have real effects, at least in the short run.1 Consequently, focus of monetary policy analysis has recently shifted from the big question of whether money matters, to emphasising other aspects of monetary policy and its relations to real economic activity. One aspect that has received considerable attention of late is the sectoral or regional effects of monetary policy shocks. Recent studies on the subject make it quite clear that different sectors or regions of the economy respond differently to monetary shocks. This observation has profound implications for the macroeconomic management as the central bank will have to weigh the varying consequences of its actions on different sectors or regions of the economy. For instance, the tightening of monetary policy might be considered mild from the aggregate perspective, yet it can be viewed as excessive for certain sectors. If this is true then monetary policy should have strong distributional effects within the economy. Accordingly, information on which sectors react first and are more adversely affected by monetary tightening provides valuable information to monetary authorities in designing appropriate monetary policies. Additionally, the results can contribute to our understanding of the underlying nature of transmission mechanism. And for that reason, many economists have called for a disaggregated analysis of monetary transmission mechanism [e.g., Domac (1999), Dedola and Lippi (2005), Ganley and Salmon (1997), Carlino and DeFina (1998)].

scholarly journals A Bound Test Analysis of Effects of Monetary Policy Shocks on Output and Prices in Nigeria 2000-2010

2013 ◽  
Vol 5 (3) ◽  
pp. 136-147
Author(s):  
Apanisile Olumuyiwa Tolulope
Keyword(s):  
Monetary Policy ◽  
Policy Instrument ◽  
Output Growth ◽  
Empirical Literature ◽  
Monetary Policy Shocks ◽  
Test Analysis ◽  
Monetary Policies ◽  
Long Run ◽  
Policy Shocks ◽  
Bound Test

The study examined the effects of monetary policy shocks on output and prices in Nigeria. This is done through an empirical analysis of the effects of anticipated and unanticipated monetary policies on output and prices. Quarterly data from 2000:1 to 2010:4 were used. The long-run ARDL estimates indicate positive and significant effects of anticipated monetary policy on output and prices while unanticipated monetary policy was insignificant. Thus, the findings provide a significant departure from the existing diversity of evidences of empirical literature on the monetary policy actions and macroeconomic variables nexus. The study therefore suggested the use of a one fit for all policy instrument in stimulating output growth and prices in the economy rather than using one specific measure which could lead to the failure of monetary policy in Nigeria.

Sign in / Sign up

Export Citation Format

Share Document