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http://ssrn.com/abstract=870478
 
 

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Markov-Switching Structural Vector Autoregressions: Theory and Application


Juan Francisco Rubio-Ramirez


Duke University - Department of Economics; Federal Reserve Bank of Atlanta - Research Department

Daniel F. Waggoner


Federal Reserve Bank of Atlanta

Tao A. Zha


Federal Reserve Bank of Atlanta

December 2005

FRB of Atlanta Working Paper No. 2005-27

Abstract:     
This paper develops a new and easily implementable necessary and sufficient condition for the exact identification of a Markov-switching structural vector autoregression (SVAR) model. The theorem applies to models with both linear and some nonlinear restrictions on the structural parameters. We also derive efficient MCMC algorithms to implement sign and long-run restrictions in Markov-switching SVARs. Using our methods, four well-known identification schemes are used to study whether monetary policy has changed in the euro area since the introduction of the European Monetary Union. We find that models restricted to only time-varying shock variances dominate the other models. We find a persistent post-1993 regime that is associated with low volatility of shocks to output, prices, and interest rates. Finally, the output effects of monetary policy shocks are small and uncertain across regimes and models. These results are robust to the four identification schemes studied in this paper.

Number of Pages in PDF File: 48

Keywords: Markov switching, regime changes, volatility, identification

JEL Classification: C32, E10

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Date posted: December 19, 2005  

Suggested Citation

Rubio-Ramirez, Juan Francisco and Waggoner, Daniel F. and Zha, Tao A., Markov-Switching Structural Vector Autoregressions: Theory and Application (December 2005). FRB of Atlanta Working Paper No. 2005-27. Available at SSRN: http://ssrn.com/abstract=870478 or http://dx.doi.org/10.2139/ssrn.870478

Contact Information

Juan Francisco Rubio-Ramirez (Contact Author)
Duke University - Department of Economics ( email )
Durham, NC 27708-0204
United States
Federal Reserve Bank of Atlanta - Research Department ( email )
1000 Peachtree Street, NE
Atlanta, GA 30309-4470
United States
404-498-8057 (Phone)
404-498-8956 (Fax)
HOME PAGE: http://www.econ.umn.edu/~rubio
Daniel F. Waggoner
Federal Reserve Bank of Atlanta ( email )
1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
404-521-8278 (Phone)
404-521-8810 (Fax)
Tao A. Zha
Federal Reserve Bank of Atlanta ( email )
1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
404-521-8353 (Phone)
404-521-8956 (Fax)
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