Gimme a Break! Identification and Estimation of the Macroeconomic Effects of Monetary Policy Shocks in the U.S.

45 Pages Posted: 12 Oct 2016

See all articles by Emanuele Bacchiocchi

Emanuele Bacchiocchi

Università degli Studi di Milano

Efrem Castelnuovo

University of Melbourne - Department of Economics

Luca Fanelli

Universita di Bologna

Date Written: October 12, 2016

Abstract

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

Bacchiocchi, Emanuele and Castelnuovo, Efrem and Fanelli, Luca, Gimme a Break! Identification and Estimation of the Macroeconomic Effects of Monetary Policy Shocks in the U.S. (October 12, 2016). Melbourne Institute Working Paper No. 31/16. Available at SSRN: https://ssrn.com/abstract=2851316 or http://dx.doi.org/10.2139/ssrn.2851316

Emanuele Bacchiocchi

Università degli Studi di Milano ( email )

Milan, 20122
Italy

Efrem Castelnuovo (Contact Author)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

HOME PAGE: http://https://sites.google.com/site/efremcastelnuovo/home

Luca Fanelli

Universita di Bologna ( email )

Bologna, 40126
Italy

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