Evolution of Monetary Policy in Peru: An Empirical Application using a Mixture Innovation TVP-VAR-SV Model

Jhonatan Portilla Goicochea and Gabriel Rodríguez
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Jhonatan Portilla Goicochea: Departamento de Economía de la Pontificia Universidad Católica del Perú

No 2020-485, Documentos de Trabajo / Working Papers from Departamento de Economía - Pontificia Universidad Católica del Perú

Abstract: This paper discusses the evolution of monetary policy (MP) in Peru in 1996Q1-2016Q4 using a mixture innovation time-varying parameter vector autoregressive model with stochastic volatility (TVP-VAR-SV) as proposed by Koop et al. (2009). The main empirical results are: (i) the VAR coefficients and volatilities change more gradually than the covariance errors over time; (ii) the volatility of MP shocks was higher under the pre- Inflation Targeting (IT) regime; (iii) a surprise increase in the interest rate produces GDP growth falls and reduces inflation in the long run; (iv) the interest rate reacts more quickly to aggregate supply (AS) shocks than to aggregate demand (AD) shocks; (v) MP shocks explain a high percentage of domestic variable behavior under the pre-IT regime but their contribution decreases under the IT regime.

Keywords: Poítica Monetaria; TVP-VAR-SV; Estimación Bayesiana; Modelo de Mezcla de Innovaciones; Economía Peruana (search for similar items in EconPapers)
Pages: 42
Date: 2020
New Economics Papers: this item is included in nep-cba and nep-mon
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http://doi.org/10.18800/2079-8474.0485 (application/pdf)

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Journal Article: Evolution of Monetary Policy in Peru: An Empirical Application Using a Mixture Innovation TVP-VAR-SV Model* (2022)
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