Working Paper

The Systematic Component of Monetary Policy in SVARs: An Agnostic Identification Procedure


Abstract: Following Leeper, Sims, and Zha (1996), we identify monetary policy shocks in SVARs by restricting the systematic component of monetary policy. In particular, we impose sign and zero restrictions only on the monetary policy equation. Since we do not restrict the response of output to a monetary policy shock, we are agnostic in Uhlig's (2005) sense. But, in contrast to Uhlig (2005), our results support the conventional view that a monetary policy shock leads to a decline in output. Hence, our results show that the contractionary effects of monetary policy shocks do not hinge on questionable exclusion restrictions.

Keywords: Monetary policy shocks; SVARs; Systematic component of monetary policy;

JEL Classification: E52; C51;

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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2015-03-12

Number: 1131

Pages: 40 pages