Identifying the Effects of Monetary Policy Shocks in an Open Economy

Tor Jacobson (), Per Jansson (), Anders Vredin () and Anders Warne
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Tor Jacobson: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 134, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: This paper presents estimates of the effects of monetary policy shocks on the Swedish economy. A theoretical model of an open economy is used to identify a structural VAR model. The empirical results from the identified VAR model are compared with two less structural approaches for identification of monetary policy shocks. The first assumes that shocks can be measured as deviations from a forward looking interest rate rule, estimated using Sveriges Riksbank's (Swedish central bank) own forecasts. The second approach focuses on the effects of "narrative" monetary policy shocks as given by devaluations of the Swedish currency. We find that plausible theoretical restrictions often result in price puzzles. Although conventional results obtain with certain theoretical restrictions imposed on the VAR, another way to achieve this is by using external information about large policy shocks. Thus, we find that the effects of some devaluations are consistent with the conventional wisdom about the effects of monetary policy shock.

Keywords: Common trends; devaluations; identification; inflation; monetary policy shocks; open economy; structural vector autoregression (search for similar items in EconPapers)
JEL-codes: C32 E31 E52 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2002-05-01
New Economics Papers: this item is included in nep-fin, nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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