GIMME A BREAK! IDENTIFICATION AND ESTIMATION OF THE MACROECONOMIC EFFECTS OF MONETARY POLICY SHOCKS IN THE UNITED STATES

Emanuele Bacchiocchi, Efrem Castelnuovo and Luca Fanelli ()

Macroeconomic Dynamics, 2018, vol. 22, issue 6, 1613-1651

Abstract: We employ a non-recursive identification scheme to identify the effects of a monetary policy shock in a Structural Vector Autoregressive (SVAR) model for the US post-WWII quarterly data. The identification of the shock is achieved via heteroskedasticity, and different on-impact macroeconomic responses are allowed for (but not imposed) in each volatility regime. We show that the impulse responses obtained with the suggested non-recursive identification scheme are quite similar to those conditional on a recursive VAR estimated with pre-1984 data. In contrast, recursive vs. non-recursive identification schemes return different short-run responses of output and investment during the Great Moderation. Robustness checks dealing with a different definition of investment, an alternative break-point, and federal funds futures rates as an indicator of the monetary policy stance are documented and discussed.

Date: 2018
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