Do zero and sign restricted SVARs identify unconventional monetary policy shocks in the euro area?

Adam Elbourne (a.c.elbourne@cpb.nl) and Kan Ji
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Adam Elbourne: CPB Netherlands Bureau for Economic Policy Analysis

No 391, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: This research re-examines the findings of the existing literature on the effects of unconventional monetary policy. It concludes that the existing estimates based on vector autoregressions in combination with zero and sign restrictions do not successfully isolate unconventional monetary policy shocks from other shocks impacting the euro area economy. In our research, we show that altering existing published studies by making the incorrect assumption that expansionary monetary shocks shrink the ECB’s balance sheet or even ignoring all information about the stance of monetary policy results in the same shocks and, therefore, the same estimated responses of output and prices. As a consequence, it is implausible that the shocks previously identified in the literature are true unconventional monetary policy shocks. Since correctly isolating unconventional monetary policy shocks is a prerequisite for subsequently estimating the effects of unconventional monetary policy shocks, the conclusions from previous vector autoregression models are unwarranted. We show this lack of identification for different specifications of the vector autoregression models and different sample periods.

JEL-codes: C32 E52 (search for similar items in EconPapers)
Date: 2019-02
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-eec, nep-ets, nep-mac and nep-mon
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Citations: View citations in EconPapers (18)

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