Monetary Transmission Mechanism In A Small Open Economy: A Bayesian Structural Var Approach

Rokon Bhuiyan
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Rokon Bhuiyan: Queen's University

No 1183, Working Paper from Economics Department, Queen's University

Abstract: This paper develops an open-economy Bayesian structural VAR model for Canada in order to estimate the effects of monetary policy shocks, using the overnight target rate as the policyinstrument. I allow the policy variable and the financial variables of the model to interact simultaneously with each other and with a number of other home and foreign variables. WhenI estimate this over-identified VAR model, I find that the policy shock transmits to real output through both the interest rate and exchange rate channels, and the shock does not induce a departure from uncovered interest rate parity. I also find that the impulse response of the monetary aggregate, M1, does not exactly follow the impulse response of the target rate.Finally, I find that Canadian variables significantly responds to the US federal funds rate shock, and external shocks are an important source of Canadian output fluctuations.

Keywords: Monetary policy; structural VAR; block exogeneity; impulse response (search for similar items in EconPapers)
JEL-codes: C32 E52 F37 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2008-10
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1183.pdf First version 2008 (application/pdf)

Related works:
Journal Article: Monetary transmission mechanisms in a small open economy: a Bayesian structural VAR approach (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:1183

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