Monetary policy shocks over the business cycle: Extending the Smooth Transition framework

Martin Bruns and Michele Piffer
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Michele Piffer: King's College London

No 2021-07, University of East Anglia School of Economics Working Paper Series from School of Economics, University of East Anglia, Norwich, UK.

Abstract: We extend the Smooth Transition Vector Autoregressive model to allow for identification via a combination of external instruments and sign restrictions, while estimating rather than calibrating the parameters ruling the nonlinearity of the model. We hence o er an alternative to using the recursive identification with selected calibrated parameters, which is the main approach currently available. We use the model to study how the effects of monetary policy shocks change over the business cycle. We show that financial variables, inflation and output respond to a monetary shock more in a recession than in an expansion, in line with the predictions from the financial accelerator literature.

Keywords: Nonlinear models; proxy SVARs; monetary policy shocks; sign restrictions. (search for similar items in EconPapers)
JEL-codes: C32 E52 (search for similar items in EconPapers)
Date: 2021-08-05
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ets, nep-isf, nep-mac and nep-mon
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Citations: View citations in EconPapers (6)

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