A Bayesian approach to counterfactual analysis of structural change

Chang-Jin Kim (), James Morley and Jeremy Piger

No 2004-014, Working Papers from Federal Reserve Bank of St. Louis

Abstract: In this paper, we develop a Bayesian approach to counterfactual analysis of structural change. Contrary to previous analysis based on classical point estimates, this approach provides a straightforward measure of estimation uncertainty for the counterfactual quantity of interest. We apply the Bayesian counterfactual analysis to examine the sources of the volatility reduction in U.S. real GDP growth in the 1980s. Using Blanchard and Quah?s (1989) structural VAR model of output growth and the unemployment rate, we find strong statistical support for the idea that a counterfactual change in the size of structural shocks alone, with no corresponding change in propagation, would have produced the same overall volatility reduction that actually occurred. Looking deeper, we find evidence that a counterfactual change in the size of aggregate supply shocks alone would have generated a larger volatility reduction than a counterfactual change in the size of aggregate demand shocks alone. We show that these results are consistent with a standard monetary VAR, for which counterfactual analysis also suggests the importance of shocks in generating the volatility reduction, but with the counterfactual change in monetary shocks alone generating a small reduction in volatility.

Keywords: Monetary policy; Econometrics (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://s3.amazonaws.com/real.stlouisfed.org/wp/2004/2004-014.pdf Full text (application/pdf)

Related works:
Working Paper: A Bayesian Approach to Counterfactual Analysis of Structural Change (2006)
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:fip:fedlwp:2004-014

Ordering information: This working paper can be ordered from

DOI: 10.20955/wp.2004.014

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().