Structural Factor-Augmented VAR (SFAVAR) and the Effects of Monetary Policy

Francesco Belviso and Fabio Milani

Macroeconomics from University Library of Munich, Germany

Abstract: Factor-augmented VARs (FAVARs) have combined standard VARs with factor analysis to exploit large data sets in the study of monetary policy. FAVARs enjoy a number of advantages over VARs: they allow a better identification of the monetary policy shock; they can avoid the use of a single variable to proxy theoretical constructs, such as the output gap; they allow researchers to compute impulse responses for hundreds of variables. Their shortcoming, however, is that the factors are not identified and, therefore, lack any economic interpretation. This paper seeks to provide an interpretation to the factors. We propose a novel Structural Factor-Augmented VAR (SFAVAR) model, where the factors have a clear meaning: 'Real Activity' factor, 'Price Pressures' factor, 'Financial Market' factor, 'Credit Conditions' factor, 'Expectations' factor, etc. The paper employs a Bayesian approach to extract the factors and jointly estimate the model. This framework is then suited to study the effects on a wide range of macroeconomic variables of monetary policy and non-policy shocks.

Keywords: VAR; Dynamic Factors; Monetary Policy; Structural FAVAR. (search for similar items in EconPapers)
JEL-codes: C32 C43 E50 E52 E58 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2005-03-30
New Economics Papers: this item is included in nep-mac and nep-mon
Note: Type of Document - pdf; pages: 48
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0503/0503023.pdf (application/pdf)

Related works:
Journal Article: Structural Factor-Augmented VARs (SFAVARs) and the Effects of Monetary Policy (2006)
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:wpa:wuwpma:0503023

Access Statistics for this paper

More papers in Macroeconomics from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ( this e-mail address is bad, please contact ).