DP2333 Monetary Policy Misspecification in VAR Models
Author(s): | Fabio Canova, Joaquim Pivis Pina |
Publication Date: | December 1999 |
Keyword(s): | General Equilibrium, identification, Monetary Policy, Structural VARs |
JEL(s): | C32, C68, E32, E52 |
Programme Areas: | International Macroeconomics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=2333 |
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.