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Using Financial Markets To Estimate the Macro Effects of Monetary Policy

Stefan Pitschner ()
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Stefan Pitschner: Universitat Pompeu Fabra

No 267, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: In this paper, I use high-frequency financial market estimates to identify the monetary policy shock in a non-recursive 133 variable FAVAR. All restrictions are imposed exclusively on impact, and only on financial market variables. Using the economy's underlying factor structure as the link between its real and financial sides, I find that high-frequency responses contain valuable information about the behavior of lower-frequency macro variables. Even though the proposed identification scheme does not fall back on any of the standard (FA) VAR identifying assumptions, it confirms the classical finding that monetary policy has strong and significant delayed effects on real activity. I also obtain stock market responses that are compatible with the efficient market hypothesis and find that consumer prices react very little to monetary policy.

Keywords: Monetary Policy; Impact Identication; FAVAR; Financial Markets; Efficient Market Hypothesis (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2013-05-01
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-mst
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0267

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