Dynamics and Interactions of Monetary Policy and Macroeconomic Variables: Empirical Investigation in the UK Economy with Bayesian VAR

Shahida Pervin

MPRA Paper from University Library of Munich, Germany

Abstract: Applying the MCMC algorithm for time varying Bayesian VAR model, I have estimated the impulse response, stochastic volatility and forecast error variance decomposition. The model allows both parameters and stochastic volatility to vary. The impulse response of unemployment, inflation and interest rate to the interest rate shock using the UK data during 1971:Q1-2016:Q4 has taken place for a horizon of 40 quarters. The obtained result indicates that the response to interest rate shock does not decay entirely and the shocks have substantial effect on error variance in the forecast horizon, and the stochastic volatility has reduced over time except unemployment.

Keywords: Monetary Policy; Macroeconomic Variables: UK Economy; Bayesian VAR. (search for similar items in EconPapers)
JEL-codes: E4 E43 E5 E50 E52 E58 (search for similar items in EconPapers)
Date: 2018-09-03
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