What Lies Beneath? A Time‐Varying Favar Model for the UK Transmission Mechanism

32 Pages Posted: 23 May 2014

See all articles by Colin Ellis

Colin Ellis

University of Birmingham - Department of Economics

Haroon Mumtaz

University of London - School of Sciences

Pawel Zabczyk

International Monetary Fund MCMMP

Multiple version iconThere are 2 versions of this paper

Date Written: May 2014

Abstract

We use a time‐varying factor‐augmented VAR to investigate changes in the transmission mechanism of economic shocks in the UK. Our estimates demonstrate the importance of time variation and suggest that monetary policy shocks had a bigger impact on inflation, equity prices and the exchange rate during the inflation targeting period. Changes in the transmission of policy shocks to bond yields point to more efficient management of long‐run inflation expectations. Finally, we investigate responses of disaggregated prices, with the median becoming more negative and cross‐sectional patterns consistent with a decrease in the role of cost channels.

Suggested Citation

Ellis, Colin and Mumtaz, Haroon and Zabczyk, Pawel, What Lies Beneath? A Time‐Varying Favar Model for the UK Transmission Mechanism (May 2014). The Economic Journal, Vol. 124, Issue 576, pp. 668-699, 2014. Available at SSRN: https://ssrn.com/abstract=2441400 or http://dx.doi.org/10.1111/ecoj.12147

Colin Ellis (Contact Author)

University of Birmingham - Department of Economics ( email )

Economics Department
Birmingham, B15 2TT
United Kingdom

Haroon Mumtaz

University of London - School of Sciences ( email )

London, WC1E 7HX
United Kingdom

Pawel Zabczyk

International Monetary Fund MCMMP ( email )

International Monetary Fund
700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://pawel.zabczyk.com

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