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.