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When multiple objectives meet multiple instruments: Identifying simultaneous monetary shocks

Daniel Ordoñez-Callamand, Juan Hernández-Leal () and Mauricio Villamizar-Villegas ()

International Review of Economics & Finance, 2018, vol. 58, issue C, 78-101

Abstract: Central bank intervention typically entails the use of multiple and possibly non-linear policies. In this paper we introduce a dynamic Tobit model embedded in a Vector Autoregression in order to identify simultaneous monetary shocks. Our method is easily estimated using only least squares and a maximum likelihood function. Also, impulse-responses are carried out as in the traditional time-series setting and can be applied in a structural framework. In simulation exercises we show that, as policy covariance grows, our method increasingly outperforms a benchmark case of estimating policy functions separately. We find significant differences when estimating our method in emerging market economies.

Keywords: Simultaneous policies; Instrumental VAR; Tobit-VAR; Monetary trilemma; C34E52E58 (search for similar items in EconPapers)
Date: 2018
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