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Federal Reserve Bank of Atlanta
FRB Atlanta Working Paper
The Systematic Component of Monetary Policy in SVARs: An Agnostic Identification Procedure
Jonas E. Arias
Dario Caldara
Juan F. Rubio-Ramirez
Abstract

This paper studies the effects of monetary policy shocks using structural VARs. We achieve identification by imposing sign and zero restrictions on the systematic component of monetary policy. Importantly, our identification scheme does not restrict the contemporaneous response of output to a monetary policy shock. Using data for the period 1965–2007, we consistently find that an increase in the federal funds rate induces a contraction in output. We also find that monetary policy shocks are contractionary during the Great Moderation. Finally, we show that the identification strategy in Uhlig (2005), which imposes sign restrictions on the impulse response functions to a monetary policy shock, does not satisfy our restrictions on the systematic component of monetary policy with high posterior probability.


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Jonas E. Arias & Dario Caldara & Juan F. Rubio-Ramirez, The Systematic Component of Monetary Policy in SVARs: An Agnostic Identification Procedure, Federal Reserve Bank of Atlanta, FRB Atlanta Working Paper 2016-15, 01 Dec 2016, revised 01 Oct 2017.
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Keywords: SVARs; monetary policy shocks; systematic component of monetary policy
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