Dynamics and Interactions of Monetary Policy and Macroeconomic Variables: Empirical Investigation in the UK Economy with Bayesian VAR

Pervin, Shahida (2018): Dynamics and Interactions of Monetary Policy and Macroeconomic Variables: Empirical Investigation in the UK Economy with Bayesian VAR.

Abstract

Applying the MCMC algorithm for time varying Bayesian VAR model, I have estimated the impulse response, stochastic volatility and forecast error variance decomposition. The model allows both parameters and stochastic volatility to vary. The impulse response of unemployment, inflation and interest rate to the interest rate shock using the UK data during 1971:Q1-2016:Q4 has taken place for a horizon of 40 quarters. The obtained result indicates that the response to interest rate shock does not decay entirely and the shocks have substantial effect on error variance in the forecast horizon, and the stochastic volatility has reduced over time except unemployment.

• Item Type: MPRA Paper
• Language: English
• Keywords: Monetary Policy; Macroeconomic Variables: UK Economy; Bayesian VAR.
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General; 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

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