Asymptotic Distributions of Impulse Responses, Step Responses, and Variance Decompositions of Estimated Linear Dynamic Models

Mittnik, Stefan; Zadrozny, Peter A.

doi:10.2307/2951765

Cited by 45 publications

(25 citation statements)

References 20 publications

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“…Point estimates and asymptotic distributions of shock response can be derived analytically from the estimated VAR parameters (cf. Mittnik and Zadrozny, 1993). In nonlinear settings, this is, in general, not possible, and one typically has to resort to Monte Carlo simulations.…”

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confidence: 99%

The real consequences of financial stress

Mittnik

Semmler

2013

Journal of Economic Dynamics and Control

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We introduce a dynamic banking-macro model, which abstains from conventional meanreversion assumptions and in which-similar to Brunnermeier and Sannikov (2010)-adverse asset-price movements and their impact on risk premia and credit spreads can induce instabilities in the banking sector. To assess such phenomena empirically, we employ a multi-regime vector autoregression (MRVAR) approach rather than conventional linear vector autoregressions. We conduct bivariate empirical analyses, using country-specific financial-stress indices and industrial production, for the U.S., the UK and the four large euro-area countries. Our MRVAR-based impulse-response studies demonstrate that, compared to a linear specification, response profiles are dependent on the current state of the economy as well as the sign and size of shocks. Previous multi-regime-based studies, focusing solely on the regime-dependence of responses, conclude that, during a high-stress period, stress-increasing shocks have more dramatic consequences for economic activity than during low stress. Conducting size-dependent response analysis, we find that this holds only for small shocks and reverses when shocks become sufficiently large to induce immediate regime switches. Our findings also suggest that, in states of high financial stress, large negative shocks to financial-stress have sizeable positive effects on real activity and support the idea of "unconventional" monetary policy measures in cases of extreme financial stress.

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confidence: 99%

The real consequences of financial stress

Mittnik

Semmler

2013

Journal of Economic Dynamics and Control

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“…In the second step contemporaneous as well as long-run restrictions can be imposed to identify the shocks that affect the economy. Moreover, Vlaar (1998) derives the correct asymptotic distribution of the confidence bands in case of long-run restrictions for identifying the VAR using an idea proposed by Mittnik and Zadrozny (1993). This approach is chosen in the present paper.…”

Section: Introductionmentioning

confidence: 99%

Monetary transmission in Germany: Lessons for the Euro area

Hubrich

Vlaar

2004

Empirical Economics

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This study analyses the transmission of monetary policy in Germany for the EMS period in the framework of a structural vector error correction model (S-VECM). Three stable cointegration relationships are found: a money demand relation, an interest rate spread and a stationary real interest rate. Based on both contemporaneous and long-run restrictions, five structural shocks to the economy are identified.In contrast to analyses for the euro area, we find that output and inflation are not independent in the long run for Germany. In accordance with results previously found for Europe, we do not find strong support for monetary targeting for Germany. Our analysis indicates that uncertainties remain concerning the controllability of money and its usefulness as a leading indicator with respect to inflation. Stability of the money demand relationship does not seem to be problematic.

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“…We have performed some simulation experiments on a stochastic version of our estimated nonlinear model and compared the resulting statistics with those obtained from the RBC model. In addition, following Mittnik and Zadrozny (1993) a VAR with confidence bands for historical data is estimated and cumulative impulse-response functions compared to the model's impulse response functions. Overall the stochastic version of our estimated nonlinear model performs reasonably well on most of the measures we have discussed.…”

Section: Discussionmentioning

confidence: 99%

“…the estimated VAR model. To judge the significance of these responses we computed asymptotic two-standard-deviation confidence bands (dashed lines) following Mittnik and Zadrozny (1993). The estimated impulse responses are as follows.…”

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Stock Market, Interest Rate and Output: A Model and Estimation for US Time Series Data

Chiarella¹,

Semmler²,

Mittnik³

et al. 2002

Studies in Nonlinear Dynamics &Amp; Econometrics

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In this paper we construct a model of stock market, interest rate and output interaction which is a generalization of the well known 1981 model of Blanchard. We allow for imperfect substitutability between stocks and bonds in the asset market and for lagged portfolio adjustment. The reaction of agents to changes in the stock market is dependent on the state of the economy. We analyze the dynamics of the model and its local stability properties. A discretization in terms of observable variables is derived. Some empirical results for U.S. output, stock price and interest rate data are presented using nonlinear least square estimates. We perform some stochastic simulations of the estimated non-linear model, obtaining distributions of the key economic quantities, their autocorrelation structure and financial statistics which are compared with historical data and RBC models. In addition, following Mittnik and Zadrozny (1993) a VAR with confidence bands for historical data is estimated and cumulative impulse-response functions compared to the model's impulse response functions. We find that the model captures a number of features of the data.

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Asymptotic Distributions of Impulse Responses, Step Responses, and Variance Decompositions of Estimated Linear Dynamic Models

Cited by 45 publications

References 20 publications

The real consequences of financial stress

The real consequences of financial stress

Monetary transmission in Germany: Lessons for the Euro area

Stock Market, Interest Rate and Output: A Model and Estimation for US Time Series Data

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