Gimme a Break! Identification and Estimation of the Macroeconomic Effects of Monetary Policy Shocks in the U.S.
45 Pages Posted: 12 Oct 2016
Date Written: October 12, 2016
We employ a non-recursive identification scheme to identify the effects of a monetary policy shock in a Structural Vector Autoregressive (SVARs) model for the U.S. post-WWII quarterly data. The identification of the shock is achieved via heteroskedasticity, and different on-impact macroeconomic responses are allowed for (but not imposed) in each volatility regime. We show that the impulse responses obtained with the suggested non-recursive identification scheme are quite similar to those conditional on a recursive VAR estimated with pre-1984 data. In contrast, recursive vs. non-recursive identification schemes return different short-run responses of output and investment during the Great Moderation. Robustness checks dealing with a different definition of investment, an alternative breakpoint, and federal funds futures rates as an indicator of the monetary policy stance are documented and discussed.
Keywords: structural break, recursive and non-recursive VARs, identification, monetary policy shocks, impulse responses
JEL Classification: C32, C50, E52
Suggested Citation: Suggested Citation