Investigating the Impact of Monetary Policy using the Vector Autoregression Method

Salmanov, Oleg and Zaernjuk, Victor and Lopatina, Olga and Drachena, Irina and Vikulina, Evgeniya (2016): Investigating the Impact of Monetary Policy using the Vector Autoregression Method. Published in: International Journal of Economics and Financial Issues No. 2016, 6(S2) (1 June 2016): pp. 273-282.

Abstract

Careful identification of the transmission channels of monetary policy is an important step in the global assessment of the major institutional changes. Research in this area should be constantly updated because of the strong structural dynamics. The goal of this paper is to study the monetary transmission in the Russian economy. The study was carried out using the vector autoregression (VAR) method. The analysis of impulse functions of interest rate shocks, corporate lending, volume of money supply, growth of prices and the exchange rate was carried out. An interpretation of the transmission channels of the Russian economy was given. The following channels were considered: Interest rate, bank lending, cash flows, unforeseen prices and the exchange rate channel. All channels under consideration are statistically confirmed, but they exist with varying degrees of effectiveness. The existence of weak channels of monetary transmission is associated with the depressive state of the economy, lack of its growth in recent years, and high inflation, as well as with the policy of shift from the ruble rate targeting to the inflation targeting policy. The outcomes of use of the standard VAR methods for the developing Russian economy can be used as a guideline for further theoretical and empirical analysis of the transmission mechanism.

• Item Type: MPRA Paper
• Language: English
• Keywords: Monetary Policy, Vector Autoregression, Impulse Functions
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

References

Ahmadi, P.A., Uhlig, H. (2015), Sign restrictions in Bayesian FAVARS with an application to monetary policy shocks. National Bureu of Economic Research, November 2015. [Date Views: 05.01.16]. Available from: http://www.nber.org/papers/w21738.

Banbura, M., Giannone, D., Reichlin, L. (2010), Large Bayesian vector autoregressions. Journal of Applied Econometrics, 25(1), 71-92.

Beck, R., Kamps, A., Mileva, E. (2007), Long-Term Growth Prospects for the Russian Economy (March 2007). ECB Occasional Paper, 58.

Bernanke, B., Blinder, A. (1992), The federal funds rate and the channels of monetary transmission. American Economic Review, 82, 901-921.

Bernanke, B., Boivin, J., Eliasz, P. (2004), Measuring the effects of monetary policy: Afactor-augmented vector autoregressive (FAVAR) approach. Working Paper, National Bureau of Economic Research. January, 2004.

Bernanke, B., Gertler, M. (1995), Inside the black box: The credit channel of monetary transmission. Journal of Economic Perspectives, 9, 27-48.

Boivin, J., Giannoni, M. (2003), Has monetary policy become more effective? NBER Working Paper, 9459.

Christiano, L. (2012), Christopher A. Sims and vector autoregressions. The Scandinavian Journal of Economics, 114(4), 1082-1104.

Christiano, L., Eichenbaum, M., Evans, C. (2000), Monetary policy shocks: What have we learned and to what end? In: Taylor, J., Woodford, M., editors. Handbook of Macroeconomics. Amsterdam: North Holland.

Christiano, L., Eichenbaum, M., Vigfusson, R. (2006), Assessing Structural VARs. August, 2006.

De Grauwe, P., Storti, C.C. (2004), The effects of monetary policy: A meta-analysis. (June 2004). CESifo Working Paper Series, 1224.

Deryugina, E., Ponomarenko, A. (2015), A large Bayesian vector autoregression model for Russia. Series of Reports on Economic Research, 1. [Date Views: 04.27.16]. Available from: http://www. cbr.ru.

Drobyshevsky, S.M., Trunin, P.V., Kamenskih, M.V. (2009), Analysis of the rules of monetary and credit policy of Russia in 1999-2007. Gaidar Institute for Economic Policy, WP. 127.

Granville, B., Mallick, S. (2010), Monetary policy in Russia: Identifying exchange rate shocks. Economic Modelling, 27(1), 432-444.

Leeper, E., Sims, C., Zha, T. (1996), What does monetary policy do? Brookings Papers on Economic Activity, 2, 1-63.

Lomivorotov, R.V. (2013), Analysis of the monetary policy of the Bank of Russia in 2000-2012. Money and Credit, 12, 45-53.

Lomivorotov, R.V. (2015), Bayesian estimation of monetary policy in Russia. Applied Econometrics, 38(2), 41-63. Mishra, P., Montiel, P. (2012), How effective is monetary transmission in low-income countries? A survey of the empirical evidence. International Monetary Fund, IMF Working Paper, June, 2012.

Rautava, J. (2004), The role of oil prices and the real exchange rate in Russia’s economy: A co-integration approach. Journal of Comparative Economics, 32(2), 315-327.

Rautava, J. (2013), Oil prices, excess uncertainty and trend growth. [Date Views: 05.03.16]. Available from: https://www.oenb.at/Publikationen/Volkswirtschaft/Focus-on-European-EconomicIntegration/2013/Focuson-European-Economic-Integration-Q4-13.html.

Sims, C. (1980), Macroeconomics and reality. Econometrica, 48(1), 1-48.

Sims, C. (1992), Interpreting the macro-economic time series facts: The effects of monetary policy. European Economic Review, 36, 975-1011.

Wong, K.F. (2000), Variability in the effects of monetary policy on economic activity. Journal of Money, Credit and Banking, 32(2), 179-198. [Date Views: 04.29.16]. Available from: http://www.jstor. org/stable/2601238