Download This PaperMonetary Policy Misspecification in VAR Models
Univ. Pompeu Fabra, Economics and Business Working Paper No. 420
66 Pages Posted: 9 Aug 2000
Abstract
We examine the effects of extracting monetary policy disturbances with semi-structural and structural VARs, using data generated by a limited participation model under partial accommodative and feedback rules. We find that, in general, misspecification is substantial: short run coefficients often have wrong signs; impulse responses and variance decompositions give misleading representations of the dynamics. Explanations for the results and suggestions for macroeconomic practice are provided.
Keywords: general equilibrium, monetary policy, identification, structural VARs
JEL Classification: C32, C68, E32, E52
Suggested Citation: Suggested Citation
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