Identifying monetary policy in a small open economy under flexible exchange rates

Abstract

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Modeling Macro-Political Dynamics

“…On this point see . and Zha 1997). Some researchers contend that formal models produce more useful structural insights than VAR models (structural, reduced form and/or Bayesian).…”

Symmetry of External Shock Responses within the Andean Community of Nations: A SVAR Approach

“…However in recent years several authors have used Structural VAR models (SVAR) (Cushman and Tao, 1997;Kim and Roubini, 2000;Canova, 2005;Mackowiak, 2005;Gimet, 2007;Allegret and Sand, 2007) due to the fact that they make it possible to take into account the economic theory in modeling the countries' behavior and identify the shocks for a better interpretation of results. (See Appendix 1 for a formalization of the SVAR model).…”

“…The first two domestic variables (i.e., real gross domestic product and real exchange rate) are representative of the real economic sector, and the last two (i.e., the interest rate and consumer price index) represent the monetary sector. To take into account the supply and demand side, this choice follows the supply, demand and monetary shocks decomposition proposed by Gali (1992), Cushman and Zha (1997), Kim and Roubini (2000), and Mackowiak (2006). The aim of including the monetary and real sector at the same time is to take into consideration the fact that policymakers' reactions to shocks are different according to the existing exchange rate regimen and monetary policy objectives -the choice of variables makes it possible to differentiate between fixed and float exchange rates and inflation or monetary aggregate target -.…”

The nature and role of monetary policy when money is endogenous

“…One problem with this literature is concerned with the identification restrictions required in the vector autoregression analysis (Sarno and Taylor 2002). Cushman and Zha (1997) propose a structural model to overcome this problem in the case of Canada (see, also, Kim, and Roubini 2000, in the case of non-U.S. G7 countries). The dynamic response to a contractionary monetary policy shock is for the exchange rate to appreciate.…”