Identification of Monetary Policy Shocks within a SVAR Using Restrictions Consistent with a DSGE Model

21 Pages Posted: 26 Feb 2016

See all articles by Nikolay Arefiev

Nikolay Arefiev

National Research University Higher School of Economics

Date Written: February 25, 2016

Abstract

I identify and estimate the monetary policy rule and the monetary policy shocks within a structural vector autoregression model for the US economy. I make two contributions to the literature. First, for identification I propose to use restrictions consistent with the literature on dynamic stochastic general equilibrium (DSGE) models. Typical DSGE model produces more restrictions than is required for the identification, so overidentifying restrictions can be tested against the data. The second contribution is a new method of testing the overidentifying restrictions. This method divides the set of identifying restrictions into subsets, and tests each subset independently of the others. This method does not reject most restrictions produced by the DSGE model. The only rejections provide evidence that the Federal Reserve uses delayed information about the inflation in policy making. The proposed approach to identification helps explain and solve the price puzzle problem reported in the previous literature.

Keywords: graphical identification; sparse SVAR; price puzzle

JEL Classification: C30, E52

Suggested Citation

Arefiev, Nikolay, Identification of Monetary Policy Shocks within a SVAR Using Restrictions Consistent with a DSGE Model (February 25, 2016). Higher School of Economics Research Paper No. WP BRP 125/EC/2016. Available at SSRN: https://ssrn.com/abstract=2737882 or http://dx.doi.org/10.2139/ssrn.2737882

Nikolay Arefiev (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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