Proxy structural vector autoregressions, informational sufficiency and the role of monetary policy

Miescu, Mirela and Mumtaz, Haroon (2019) Proxy structural vector autoregressions, informational sufficiency and the role of monetary policy. Working Paper. Lancaster University, Department of Economics, Lancaster.

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Abstract

We show that the contemporaneous and longer horizon impulse responses estimated using small-scale Proxy structural vector autoregressions (SVARs) can be severely biased in the presence of information insufficiency. Instead, we recommend the use of a Proxy Factor Augmented VAR (FAVAR) model that remains robust in the presence of this problem. In an empirical exercise, we demonstrate that this issue has important consequences for the estimated impact of monetary policy shocks in the US. We find that the impulse responses of real activity and prices estimated using a Proxy FAVAR are substantially larger and more persistent than those suggested by a small-scale Proxy SVAR.

Item Type:
Monograph (Working Paper)
Subjects:
ID Code:
138986
Deposited By:
Deposited On:
14 Nov 2019 16:40
Refereed?:
No
Published?:
Published
Last Modified:
21 Sep 2020 23:58