The dynamic e ects of monetary policy: A structural factor model approach

Mario Forni and Luca Gambetti

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi"

Abstract: We use the structural factor model proposed by Forni, Giannone, Lippi and Reichlin (2007) to study the effects of monetary policy. The advantage with respect to the traditional vector autoregression model is that we can exploit information from a large data set, made up of 112 US monthly macroeconomic series. Monetary policy shocks are identified using a standard recursive scheme, in which the impact effects on both industrial production and prices are zero. Such a scheme, when applied to a VAR including a suitable selection of our variables, produces puzzling results. Our main findings are the following. (i) The maximal effect on bilateral real exchange rates is observed on impact, so that the “delayed overshooting” or “forward discount” puzzle disappears. (ii) After a contractionary shock prices fall at all horizons, so that the price puzzle is not there. (iii) Monetary policy has a sizable effect on both real and nominal variables. Such results suggest that the structural factor model is a promising tool for applied macroeconomics.

Keywords: Delayed Overshooting Puzzle; Monetary Policy; Price Puzzle; Structural Factor Model; Structural VAR. (search for similar items in EconPapers)
JEL-codes: C32 E32 E52 F31 (search for similar items in EconPapers)
Pages: pages 36
Date: 2008-11
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://155.185.68.2/campusone/web_dep/Recentpaper/recent-wp26.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Journal Article: The dynamic effects of monetary policy: A structural factor model approach (2010)
Working Paper: The Dynamic Effects of Monetary Policy: A Structural Factor Model Approach (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mod:recent:026

Access Statistics for this paper

More papers in Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi" Contact information at EDIRC.
Bibliographic data for series maintained by ().