Korobilis, Dimitris (2009): Assessing the transmission of monetary policy using dynamic factor models.
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Abstract
This paper extends the current literature which questions the stability of the monetary transmission mechanism, by proposing a factoraugmented vector autoregressive (VAR) model with timevarying coefficients and stochastic volatility. The VAR coefficients and error covariances may change gradually in every period or be subject to abrupt breaks. The model is applied to 143 postWorld War II quarterly variables fully describing the US economy. I show that both endogenous and exogenous shocks to the US economy resulted in the high inflation volatility during the 1970s and early 1980s. The timevarying factor augmented VAR produces impulse responses of inflation which significantly reduce the price puzzle. Impulse responses of other indicators of the economy show that the most notable changes in the transmission of unanticipated monetary policy shocks occurred for GDP, investment, exchange rates and money.
Item Type:  MPRA Paper 

Original Title:  Assessing the transmission of monetary policy using dynamic factor models 
Language:  English 
Keywords:  Structural FAVAR; time varying parameter model; monetary policy 
Subjects:  C  Mathematical and Quantitative Methods > C3  Multiple or Simultaneous Equation Models ; Multiple Variables > C32  TimeSeries Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models E  Macroeconomics and Monetary Economics > E5  Monetary Policy, Central Banking, and the Supply of Money and Credit > E52  Monetary Policy C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C11  Bayesian Analysis: General 
Item ID:  27593 
Depositing User:  Dimitris Korobilis 
Date Deposited:  21. Dec 2010 08:10 
Last Modified:  30. Dec 2015 10:30 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/27593 
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