Exploring Monetary Policy Shocks with Large-Scale Bayesian VARs

Dimitris Korobilis ()

No No 05/2025, Working Papers from Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School

Abstract: I introduce a high-dimensional Bayesian vector autoregressive (BVAR) framework designed to estimate the effects of conventional monetary policy shocks. The model captures structural shocks as latent factors, enabling computationally efficient estimation in high-dimensional settings through a straightforward Gibbs sampler. By incorporating time variation in the effects of monetary policy while maintaining tractability, the methodology offers a flexible and scalable approach to empirical macroeconomic analysis using BVARs, well-suited to handle data irregularities observed in recent times. Applied to the U.S. economy, I identify monetary shocks using a combination of high-frequency surprises and sign restrictions, yielding results that are robust across a wide range of specification choices. The findings indicate that the Federal Reserve’s influence on disaggregated consumer prices fluctuated significantly during the 2022–24 high-inflation period, shedding new light on the evolving dynamics of monetary policy transmission.

Pages: 74 pages
Date: 2025-05
New Economics Papers: this item is included in nep-ets and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bny:wpaper:0140

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