Monetary Policy Shocks, Set-identifying Restrictions, and Asset Prices: A Benchmarking Approach for Analyzing Set-identified Models

CEGE Discussion Papers, Number 295 - November 2016

48 Pages Posted: 23 Nov 2016

See all articles by Gábor Uhrin

Gábor Uhrin

University of Goettingen (Gottingen)

Helmut Herwartz

University of Goettingen (Gottingen)

Date Written: November 17, 2016

Abstract

A central question for monetary policy is how asset prices respond to a monetary policy shock. We provide evidence on this issue by augmenting a monetary SVAR for US data with an asset price index, using set-identifying structural restrictions. The impulse responses show a positive asset price response to a contractionary monetary policy shock. The resulting monetary policy shocks correlate weakly with the Romer and Romer (2004) (RR) shocks, which matters greatly when analyzing impulse responses. Considering only models with shocks highly correlated with the RR series uncovers a negative, but near-zero response of asset prices.

Keywords: monetary policy shocks, asset prices, sign restrictions, zero restrictions, set identi cation, structural VAR models

JEL Classification: C32, E44, E52

Suggested Citation

Uhrin, Gábor and Herwartz, Helmut, Monetary Policy Shocks, Set-identifying Restrictions, and Asset Prices: A Benchmarking Approach for Analyzing Set-identified Models (November 17, 2016). CEGE Discussion Papers, Number 295 - November 2016. Available at SSRN: https://ssrn.com/abstract=2874182 or http://dx.doi.org/10.2139/ssrn.2874182

Gábor Uhrin (Contact Author)

University of Goettingen (Gottingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Helmut Herwartz

University of Goettingen (Gottingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

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