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On the evolution of monetary policy

Koop, G.M. and Leon-Gonzalez, Roberto and Strachan, Rodney W. (2007) On the evolution of monetary policy. Working paper. Rimini Centre for Economic Analysis.

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    Abstract

    This paper investigates the evolution of monetary policy in the U.S. using a standard set of macroeconomic variables. Many recent papers have addressed the issue of whether the monetary transmission mechanism has changed (e.g. due to the Fed taking a more aggressive stance against in�ation) or whether apparent changes are simply due to changes in the volatility of exogenous shocks. A subsidiary question is whether any such changes have been gradual or abrupt. In this paper, we shed light on these issues using a mixture innovation model which extends the class of time varying Vector Autoregressive models with stochastic volatility which have been used in the past. The advantage of our extension is that it allows us to estimate whether, where, when and how parameter change is occurring (as opposed to assuming a particular form of parameter change). Our empirical results strongly indicate that the transmission mechanism, the volatility of exogenous shocks and the correlations between exogenous shocks are all changing (albeit at different times and to di¤erent extents) Furthermore, evolution of parameters is gradual.

    Item type: Monograph (Working paper)
    ID code: 7739
    Keywords: structural VAR, monetary policy, bayesian, mixture innovation model, time varying parameter model, Economic Theory, Statistics
    Subjects: Social Sciences > Economic Theory
    Social Sciences > Statistics
    Department: Strathclyde Business School > Economics
    Related URLs:
    Depositing user: Strathprints Administrator
    Date Deposited: 19 Mar 2009 15:22
    Last modified: 06 Sep 2014 13:52
    URI: http://strathprints.strath.ac.uk/id/eprint/7739

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