Monetary Policy Misspecification in VAR Models

Fabio Canova () and Joaquim Pires Pina

No 2333, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We examine the effects of extracting monetary policy disturbances with semi-structural and structural VARs, using data generated by a limited participation model under partial accommodative and feedback rules. We find that, in general, misspecification is substantial: short run coefficients often have wrong signs; impulse responses and variance decompositions give misleading representations of the dynamics. Explanations for the results and suggestions for macroeconomic practice are provided.

Keywords: General Equilibrium; identification; Monetary Policy; Structural VARs (search for similar items in EconPapers)
JEL-codes: C32 C68 E32 E52 (search for similar items in EconPapers)
Date: 1999-12
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Working Paper: Monetary Policy Misspecification in VAR Models (1999)
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