Working Paper

Do measures of monetary policy in a VAR make sense?

Abstract: No. In many VARs, monetary policy shocks are identified with the least squares residuals from a regression of the federal funds rate on an assortment of variables. Such regressions appear to be structurally fragile and are at odds with other evidence on the nature of the Fed's reaction function; furthermore, the residuals from these regressions have little correlation with funds rate shocks that are derived from forward-looking financial markets.

Keywords: Vector autoregression; Monetary policy - United States;

Status: Published in Monetary Policy: Measurement and Management : a conference (1996: March 1) ; International Economic Review (November 1998, v. 39 no. 4, p. 907-931

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Papers in Applied Economic Theory

Publication Date: 1996

Number: 96-05