Identification of Monetary Policy Shocks with External Instrument SVAR

Kyungmin Kim
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Kyungmin Kim: https://www.federalreserve.gov/econres/kyungmin-kim.htm

No 2017-113, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We explore the use of external instrument SVAR to identify monetary policy shocks. We identify a forward guidance shock as the monetary shock component having zero instant impact on the policy rate. A contractionary forward guidance shock raises both future output and price level, stressing the relative importance of revealing policymakers' view on future output and price level over committing to a policy stance. We also decompose non-monetary structural shocks, and find that positive shocks to output and price level lead to monetary contraction. Since information on output and price level is revealed through both monetary and non-monetary channels, some monetary and non-monetary shocks can look alike, leading to linear dependence and violating usual instrument SVAR assumptions. We show that some of the main findings are robust to such dependence.

Keywords: Forward guidance; Instrument VAR; Monetary policy (search for similar items in EconPapers)
JEL-codes: E44 E52 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2017-11-28
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2017-113

DOI: 10.17016/FEDS.2017.113

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