Canadian monetary policy analysis using a structural VARMA model

Mala Raghavan (), George Athanasopoulos () and Param Silvapulle
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Param Silvapulle: Department of Econometics and Business Statistics, Monash University

No 2014-06, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: This paper builds a structural VARMA (SVARMA) model for investigating Canadian monetary policy. Using the scalar component model (SCM) methodology proposed by Athanasopoulos and Vahid (2008a), we first identify a VARMA model and then construct a SVARMA for Canadian monetary policy. We include a SVAR model in our study for the purpose of comparison and we generate impulse responses along with 68% confidence bands for both models. Relative to the SVAR, the impulse responses generated by the SVARMA appear to be consistent with those predicted by various economic theoretical models and solve the economic puzzles found commonly in the empirical literature on monetary policy. The successful construction and implementation of the SVARMA model for Canadian monetary policy analysis, along with its promising impulse responses and superior out-of-sample forecasting performance of its reduced form compared to the VAR alternatives, indicates the suitability of this framework for small open economies.

Keywords: VARMA models; Identification; Impulse responses; Confidence band; Open economy; Transmission mechanism.Note: (search for similar items in EconPapers)
JEL-codes: C32 E52 F41 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014, Revised 2014
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Published by the University of Tasmania. Discussion paper 2014-06

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Related works:
Journal Article: Canadian monetary policy analysis using a structural VARMA model (2016)
Journal Article: Canadian monetary policy analysis using a structural VARMA model (2016)
Working Paper: Canadian Monetary Policy Analysis using a Structural VARMA Model (2013)
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