Measuring Monetary Policy with VAR Models: An Evaluation

Fabio Bagliano and Carlo Favero ()

No 1743, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper evaluates VAR models designed to analyse the monetary policy transmission mechanism in the United States by considering three issues: specification, identification, and the effect of the omission of the long-term interest rate. Specification analysis suggests that only VAR models estimated on a single monetary regime feature parameter stability and do not show signs of mis-specification. The identification analysis shows that VAR-based monetary policy shocks and policy disturbances identified from alternative sources are not highly correlated but yield similar descriptions of the monetary transmission mechanism. Lastly, the inclusion of the long-term interest rate in a benchmark VAR delivers a more precise estimation of the structural parameters capturing behaviour in the market for reserves and shows that contemporaneous fluctuations in long-term interest rates are an important determinant of the monetary authority’s reaction function.

Keywords: monetary transmission; VAR models (search for similar items in EconPapers)
JEL-codes: E44 E52 (search for similar items in EconPapers)
Date: 1997-11
References: Add references at CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1743 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Measuring monetary policy with VAR models: An evaluation (1998)
Working Paper: Measuring Monetary Policy with VAR Models: an Evaluation
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:cpr:ceprdp:1743

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1743

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().