Markov-switching structural vector autoregressions: theory and application

Juan F Rubio-Ramirez, Daniel Waggoner and Tao Zha

No 2005-27, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: This paper develops a new and easily implementable necessary and sufficient condition for the exact identification of a Markov-switching structural vector autoregression (SVAR) model. The theorem applies to models with both linear and some nonlinear restrictions on the structural parameters. We also derive efficient MCMC algorithms to implement sign and long-run restrictions in Markov-switching SVARs. Using our methods, four well-known identification schemes are used to study whether monetary policy has changed in the euro area since the introduction of the European Monetary Union. We find that models restricted to only time-varying shock variances dominate the other models. We find a persistent post-1993 regime that is associated with low volatility of shocks to output, prices, and interest rates. Finally, the output effects of monetary policy shocks are small and uncertain across regimes and models. These results are robust to the four identification schemes studied in this paper.

Date: 2005
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mac
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Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Markov-Switching Structural Vector Autoregressions: Theory and Application (2006)
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