Discussion Paper Details

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Title: Monetary Policy Misspecification in VAR Models

Author(s): Fabio Canova and Joaquim Pivis Pina

Publication Date: December 1999

Keyword(s): General Equilibrium, identification, Monetary Policy and Structural VARs

Programme Area(s): International Macroeconomics

Abstract: We examine the effects of extracting monetary policy disturbances with semi-structural and structural VARs, using data generated by a limited participation model under partial accommodative and feedback rules. We find that, in general, misspecification is substantial: short run coefficients often have wrong signs; impulse responses and variance decompositions give misleading representations of the dynamics. Explanations for the results and suggestions for macroeconomic practice are provided.

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Bibliographic Reference

Canova, F and Pina, J. 1999. 'Monetary Policy Misspecification in VAR Models'. London, Centre for Economic Policy Research.