Gimme a break! Identification and estimation of the macroeconomic effects of monetary policy shocks in the U.S

Emanuele Bacchiocchi, Efrem Castelnuovo and Luca Fanelli ()

No 181, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: We employ a novel identification scheme to quantify the macroeconomic effects of monetary policy shocks in the United States. The identification of the shocks is achieved by exploiting the instabilities in the contemporaneous coefficients of the structural VAR (SVAR) and in the covariance matrix of the reduced-form residuals. Different volatility regimes can be associated with different transmission mechanisms of the identified structural shocks. We formally test and reject the stability of our impulse responses estimated with post-WWII U.S. data by working with a break in macroeconomic volatilities occurred in the mid-1980s. We show that the impulse responses obtained with our non-recursive identification scheme are quite similar to those conditional on a standard Cholesky-SVARs estimated with pre-1984 data. In contrast, recursive vs. non-recursive identification schemes return substantially different macroeconomic reactions conditional on Great Moderation data, in particular as for inflation and a long-term interest rate. Using our non-recursive SVARs as auxiliary models to estimate a small-scale new-Keynesian model of the business cycle with an impulse response function matching approach, we show that the instabilities in the estimated VAR impulse responses are informative as for the calibration of some key-structural parameters.

Keywords: structural break; recursive and non-recursive VARs; identification; monetary policy shocks; impulse responses. (search for similar items in EconPapers)
JEL-codes: C32 C50 E52 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2014-07
New Economics Papers: this item is included in nep-ecm, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Gimme a Break! Identification and Estimation of the Macroeconomic Effects of Monetary Policy Shocks in the U.S (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0181

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