Publication: The evolution of monetary policy effectiveness under macroeconomic instability
Authors
López Buenache, Germán
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Publisher
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DOI
https://doi.org/10.1016/j.econmod.2019.02.012
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info:eu-repo/semantics/article
Description
©2019. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
This document is the Accepted version of a Published Work that appeared in final form in Economic Modelling,. To access the final edited and published work see https://doi.org/10.1016/j.econmod.2019.02.012
Abstract
This paper studies the evolution of the monetary policy transmission mechanisms in the US following the Great
Recession. The implementation of a modified Dynamic Factor Model enables the identification of two different
structural scenarios based on the information contained in a large dataset of 110 variables. Impulse Response
Functions to an increase of official interest rate for this large dataset are estimated for each structural context.
Three techniques are combined to deal with the dimensionality problems which emerge from an estimation procedure of this magnitude: (i) factor decomposition, (ii) an identification strategy independent of the number of
variables included in the dataset and (iii) a blockwise optimization algorithm for the correct selection of the
Bayesian priors. Results show the presence of a structural break in 2008 and the higher responsiveness of the
economy to monetary policy after that date.
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Citation
Economic Modelling, 83, 221-233, 2019
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