EconPapers    
Economics at your fingertips  
 

Measuring Monetary Policy with Residual Sign Restrictions at Known Shock Dates

Harald Badinger () and Stefan Schiman ()

No 300, Department of Economics Working Paper Series from WU Vienna University of Economics and Business

Abstract: We propose a novel identification strategy to measure monetary policy in a structural VAR. It is based exclusively on known past policy shocks, which are uncovered from high-frequency data, and does not rely on any theoretical a-priori restrictions. Our empirical analysis for the euro area reveals that interest rate decisions of the ECB surprised financial markets at least fifteen times since 1999. This information is used to restrict the sign and magnitude of the structural residuals of the policy rule equation at these shock dates accordingly. In spite of its utmost agnostic nature, this approach achieves strong identification, suggesting that unexpected ECB decisions have an immediate impact on the short-term money market rate, the narrow money stock, commodity prices, consumer prices and the Euro-Dollar exchange rate, and that real output responds gradually. Our close to assumption-free approach obtains as an outcome what traditional sign restrictions on impulse responses impose as an assumption.

Keywords: Structural VAR; Set Identification; Monetary Policy; ECB (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://epub.wu.ac.at/7732/ original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wiw:wus005:7732

Access Statistics for this paper

More papers in Department of Economics Working Paper Series from WU Vienna University of Economics and Business Welthandelsplatz 1, 1020 Vienna, Austria.
Bibliographic data for series maintained by WU Library ().

 
Page updated 2020-10-04
Handle: RePEc:wiw:wus005:7732