Time-Varying Identification of Monetary Policy Shocks

Annika Camehl and Tomasz Wo\'zniak
Additional contact information
Annika Camehl: Erasmus University Rotterdam
Tomasz Wo\'zniak: University of Melbourne

Papers from arXiv.org

Abstract: We propose a new Bayesian heteroskedastic Markov-switching structural vector autoregression with data-driven time-varying identification. The model selects alternative exclusion restrictions over time and, as a condition for the search, allows to verify identification through heteroskedasticity within each regime. Based on four alternative monetary policy rules, we show that a monthly six-variable system supports time variation in US monetary policy shock identification. In the sample-dominating first regime, systematic monetary policy follows a Taylor rule extended by the term spread, effectively curbing inflation. In the second regime, occurring after 2000 and gaining more persistence after the global financial and COVID crises, it is characterized by a money-augmented Taylor rule. This regime's unconventional monetary policy provides economic stimulus, features the liquidity effect, and is complemented by a pure term spread shock. Absent the specific monetary policy of the second regime, inflation would be over one percentage point higher on average after 2008.

Date: 2023-11, Revised 2024-05
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2311.05883 Latest version (application/pdf)

Related works:
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: https://EconPapers.repec.org/RePEc:arx:papers:2311.05883

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().