Monetary policy shocks:☆Testing identification conditions under time-varying conditional volatility

Normandin, Michel; Phaneuf, Louis

doi:10.1016/s0304-3932(04)00069-8

Cited by 68 publications

(101 citation statements)

References 17 publications

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“…Our e §ort lines up with previous contributions by Sack (2003, 2004), Normandin and Phaneuf (2004), L¸tkepohl (2008, 2010), and Lanne, L¸tke-pohl, and Maciejowska (2010) in showing that instabilities may represent relevant sources of information to identify structural shocks. Our analysis adds to the above mentioned contributions the idea that the transmission mechanism of the shocks may change across volatility regimes.…”

Section: Discussionsupporting

confidence: 88%

“…However, we note that the zero-restrictions imposing a lag in the response of macroeconomic aggregates are not undisputed in the literature. In fact, they are not consistent with micro-founded models relying on standard assumptions on the timing of the formation of rational expectations, which allows immediate e §ects of monetary policy shocks on the components of aggregate demand and ináation (see, e.g., Wouters (2007), GalÌ (2008) Normandin and Phaneuf (2004) as for both aggregates). Moreover, interest rates other than the federal funds rate are likely to react to monetary policy shocks within a quarter (Bagliano andFavero (1998), Gertler andKaradi (2014)).…”

Section: Plausibility Of Our Non-recursive Identiöcation Scheme: a DImentioning

confidence: 91%

“…The approach used in this paper is related to some recent works by Normandin and Phaneuf (2004), L¸tkepohl (2008, 2010) and Lanne, L¸tkepohl, and Maciejowska (2010) on the identiÖcation of SVARs subject to di §erent volatility regimes and, more generally, to the contributions of Sack (2003, 2004). Similarly to these authors, we exploit the presence of breaks in the VAR covariance matrix to identify the structural shocks.…”

Section: Relation To the Methodological Literaturementioning

confidence: 99%

“…However, some researchers have found evidence inconsistent with the assumption of a lower-triangular economic system (see Del Negro, Schorfheide, Smets, and Wouters (2007) as for the immediate reaction of output to a monetary policy shock, Faust, Swanson, and Wright (2004) as for the contemporaneous response of prices, Normandin and Phaneuf (2004) as for both, and Gertler and Karadi (2014) as regards the on-impact reactions of a variety of rates related to di §erent maturities). Moreover, most DSGE macroeconomic models typically feature no lags in the monetary policy transmission mechanism (see, e.g., parameter instability.…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Gimme a Break! Identification and Estimation of the Macroeconomic Effects of Monetary Policy Shocks in the U.S.

2016

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We employ a novel identiÖcation scheme to quantify the macroeconomic e §ects of monetary policy shocks in the United States. The identiÖcation of the shocks is achieved by exploiting the instabilities in the contemporaneous coe¢cients of the structural VAR (SVAR) and in the covariance matrix of the reduced-form residuals. Di §erent volatility regimes can be associated with di §erent transmission mechanisms of the identiÖed structural shocks. We formally test and reject the stability of our impulse responses estimated with post-WWII U.S. data by working with a break in macroeconomic volatilities occurred in the mid-1980s. We show that the impulse responses obtained with our non-recursive identiÖca-tion scheme are quite similar to those conditional on a standard Cholesky-SVARs estimated with pre-1984 data. In contrast, recursive vs. non-recursive identiÖca-tion schemes return substantially di §erent macroeconomic reactions conditional on Great Moderation data, in particular as for ináation and a long-term interest rate. Using our non-recursive SVARs as auxiliary models to estimate a small-scale new-Keynesian model of the business cycle with an impulse response function matching approach, we show that the instabilities in the estimated VAR impulse responses are informative as for the calibration of some key-structural parameters.

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Section: Discussionsupporting

confidence: 88%

Section: Plausibility Of Our Non-recursive Identiöcation Scheme: a DImentioning

confidence: 91%

Section: Relation To the Methodological Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Gimme a Break! Identification and Estimation of the Macroeconomic Effects of Monetary Policy Shocks in the U.S.

2016

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“…3 Identification through heteroscedasticity has been recently applied to study the effects of monetary policy shocks. Rigobon and Sachs (2004) assume that there is a shift in the unconditional variance of the monetary policy shock on days of FOMC meetings, while Normandin and Phaneuf (2004) and Bouakez and Normandin (2008) allow the conditional variances of policy and non-policy shocks to follow a parametric process.…”

Section: Introductionmentioning

confidence: 99%

Measuring the effects of fiscal policy

Bouakez

Chihi

Normandin

2014

Journal of Economic Dynamics and Control

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Measuring the effects of discretionary fiscal policy is both difficult and controversial, as some explicit or implicit identifying assumptions need to be made to isolate exogenous and unanticipated changes in taxes and government spending. Studies based on structural vector autoregressions typically achieve identification by restricting the contemporaneous interaction of fiscal and non-fiscal variables in a rather arbitrary way. In this paper, we relax those restrictions and identify fiscal policy shocks by exploiting the conditional heteroscedasticity of the structural disturbances. We use this methodology to evaluate the macroeconomic effects of fiscal policy shocks in the U.S. before and after 1979. Our results show substantive differences in the economy's response to government spending and tax shocks across the two periods. Importantly, we find that increases in public spending are, in general, more effective than tax cuts in stimulating economic activity. A key contribution of this study is to provide a formal test of the identifying restrictions commonly used in the literature.JEL classification: C32, E62, H20, H50, H60.

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Disentangling Demand and Supply Shocks in the Crude Oil Market: How to Check Sign Restrictions in Structural Vars

Lütkepohl

Netšunajev

2013

J of Applied Econometrics

100

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract. Given the growing dissatisfaction with exclusion and long-run restrictions in structural vector autoregressive analysis, sign restrictions are becoming increasingly popular. So far there are no techniques for validating the shocks identified via such restrictions. Although in an ideal setting the sign restrictions specify shocks of interest, sign restrictions may be invalidated by measurement errors, data adjustments or omitted variables. We model changes in the volatility of the shocks via a Markov switching (MS) mechanism and use this devise to give the data a chance to object to sign restrictions. The approach is illustrated by considering a small model for the market of crude oil. Terms of use: Documents in

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Monetary policy shocks:☆Testing identification conditions under time-varying conditional volatility

Cited by 68 publications

References 17 publications

Gimme a Break! Identification and Estimation of the Macroeconomic Effects of Monetary Policy Shocks in the U.S.

Gimme a Break! Identification and Estimation of the Macroeconomic Effects of Monetary Policy Shocks in the U.S.

Measuring the effects of fiscal policy

Disentangling Demand and Supply Shocks in the Crude Oil Market: How to Check Sign Restrictions in Structural Vars

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