Discussion paper

DP11674 The Systematic Component of Monetary Policy in SVARs: An Agnostic Identi

This paper studies the effects of monetary policy shocks using structural VARs. We achieve
identi cation by imposing sign and zero restrictions on the systematic component of monetary
policy. We consistently find that an increase in the fed funds rate induces a contraction in output.
We also show that the identi cation strategy in Uhlig (2005), which imposes sign restrictions on
the impulse responses to a monetary shock, does not satisfy our restrictions on the systematic
component of monetary policy with high posterior probability. This finding accounts for the
difference in results with Uhlig (2005), who found that contractionary monetary policy shocks
have no clear effect on output. When we reconcile the two approaches by combining both sets of
restrictions, monetary policy shocks remain contractionary.

£6.00
Citation

Rubio-Ramírez, J (2016), ‘DP11674 The Systematic Component of Monetary Policy in SVARs: An Agnostic Identi‘, CEPR Discussion Paper No. 11674. CEPR Press, Paris & London. https://cepr.org/publications/dp11674