Measuring Dynamic Transmission Using Pass-Through Impulse Response Functions

Giorgi Nikolaishvili ()

No 121, Working Papers from Wake Forest University, Economics Department

Abstract: I propose the pass-through impulse response function (PT-IRF) as a novel reduced-form empirical approach to measuring transmission channel dynamics. In essence, a PT-IRF quantifies the propagation of a shock through the Granger causality of a specified set of endogenous variables within a dynamical system. This approach has fewer informational requirements than alternative methods, such as structural parameter and empirical policy counterfactual exercises. A PT-IRF only requires the specification of a reduced-form VAR and identification of a shock of interest, bypassing the need to either build a structural model or identify multiple shocks. I demonstrate the flexibility of PT-IRFs by empirically analyzing the indirect dynamic transmission of oil price shocks to inflation and output via interest rates, as well as the indirect dynamic effect of monetary policy shocks on output via changes in credit supply.

Keywords: Directed graph; dynamic propagation; Granger causality; vector autoregression (search for similar items in EconPapers)
JEL-codes: C10 C32 C50 E52 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2025-01-27
New Economics Papers: this item is included in nep-cba, nep-ecm and nep-ets
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Persistent link: https://EconPapers.repec.org/RePEc:ris:wfuewp:0121

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