Identifying the monetary transmission mechanism using structural breaks

Andreas Beyer () and Roger E. A. Farmer ()

No 275, Working Paper Series from European Central Bank

Abstract: We propose a method for estimating a subset of the parameters of a structural rational expectations model by exploiting changes in policy. We define a class of models, midway between a vector autoregression and a structural model, that we call the recoverable structure. As an application of our method we estimate the parameters of a model of the US monetary transmission mechanism. We estimate a vector autoregression and find that its parameters are unstable. However, using our proposed identification method we are able to attribute instability in the parameters of the VAR solely to changes in the parameters of the policy rule. We recover parameter estimates of the recoverable structure and we demonstrate that these parameters are invariant to changes in policy. Since the recoverable structure includes future expectations as explanatory variables our parameter estimates are not subject to the Lucas [24] critique of econometric policy evaluation. JEL Classification: C51; E43; E52; E58.

Keywords: Fed; Monetary transmission; identification; structural breaks; recoverable structure. (search for similar items in EconPapers)
Date: 2003-09
View list of references View citations in EconPapers

Downloads: (external link)
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp275.pdf (application/pdf)

Related works:
Working Paper: Identifying the Monetary Transmission Mechanism Using Structural Breaks (2003)
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: http://EconPapers.repec.org/RePEc:ecb:ecbwps:20030275

Ordering information: This working paper can be ordered from
Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank
Address: Postfach 16 03 19, Frankfurt am Main, Germany
Contact information at EDIRC.
Series data maintained by Official Publications ().