The Systematic Component of Monetary Policy in Svars: An Agnostic Identification Procedure

28 Pages Posted: 19 Dec 2016 Last revised: 21 Oct 2017

See all articles by Jonas Arias

Jonas Arias

Federal Reserve Bank of Philadelphia

Dario Caldara

Board of Governors of the Federal Reserve System

Juan Rubio Ramírez

Emory University

Multiple version iconThere are 2 versions of this paper

Date Written: 2016-12-01

Abstract

This paper studies the effects of monetary policy shocks using structural VARs. We achieve identification by imposing sign and zero restrictions on the systematic component of monetary policy. Importantly, our identification scheme does not restrict the contemporaneous response of output to a monetary policy shock. Using data for the period 1965–2007, we consistently find that an increase in the federal funds rate induces a contraction in output. We also find that monetary policy shocks are contractionary during the Great Moderation. Finally, we show that the identification strategy in Uhlig (2005), which imposes sign restrictions on the impulse response functions to a monetary policy shock, does not satisfy our restrictions on the systematic component of monetary policy with high posterior probability.

Keywords: SVARs, monetary policy shocks, systematic component of monetary policy

JEL Classification: C51, E52

Suggested Citation

Arias, Jonas and Caldara, Dario and Rubio Ramírez, Juan, The Systematic Component of Monetary Policy in Svars: An Agnostic Identification Procedure (2016-12-01). FRB Atlanta Working Paper No. 2016-15. Available at SSRN: https://ssrn.com/abstract=2886810

Jonas Arias (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

10 N Independence Mall W
Philadelphia, PA 19106
United States

Dario Caldara

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Juan Rubio Ramírez

Emory University ( email )

201 Dowman Drive
Atlanta, GA 30322
United States

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