Factor Augmented Vector-autoregression with Narrative Identification
Factor Augmented Vector-autoregression with Narrative Identification

Author: Giorgia De Nora

Publisher:

Published: 2021

Total Pages:

ISBN-13:

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I extend the Bayesian Factor-Augmented Vector Autoregressive model (FAVAR) to incorporate an identification scheme based on an exogenous variable approach. A Gibbs sampling algorithm is provided to estimate the posterior distributions of the models parameters. I estimate the effects of a monetary policy shock in the United States using the proposed algorithm, and find that an increase in the Federal Fund Rate has contractionary effects on both the real and financial sides of the economy. Furthermore, the paper suggests that data-rich models play an important role in mitigating price and real economic puzzles in the estimated impulse responses as well as the discrepancies among the impulse responses obtained with different monetary policy instruments.

Bayesian Multivariate Time Series Methods for Empirical Macroeconomics
Bayesian Multivariate Time Series Methods for Empirical Macroeconomics

Author: Gary Koop

Publisher: Now Publishers Inc

Published: 2010

Total Pages: 104

ISBN-13: 160198362X

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Bayesian Multivariate Time Series Methods for Empirical Macroeconomics provides a survey of the Bayesian methods used in modern empirical macroeconomics. These models have been developed to address the fact that most questions of interest to empirical macroeconomists involve several variables and must be addressed using multivariate time series methods. Many different multivariate time series models have been used in macroeconomics, but Vector Autoregressive (VAR) models have been among the most popular. Bayesian Multivariate Time Series Methods for Empirical Macroeconomics reviews and extends the Bayesian literature on VARs, TVP-VARs and TVP-FAVARs with a focus on the practitioner. The authors go beyond simply defining each model, but specify how to use them in practice, discuss the advantages and disadvantages of each and offer tips on when and why each model can be used.

Estimating the Impact, Transmission Mechanism and Reaction Function of Monetary Policy
Estimating the Impact, Transmission Mechanism and Reaction Function of Monetary Policy

Author: Dawit Legesse Senbet

Publisher:

Published: 2007

Total Pages: 362

ISBN-13:

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This dissertation employs factor-augmented vector autoregressive (FAVAR) models to investigate the impact, transmission mechanism and reaction function of monetary policy. The recent development of augmenting dynamic factor analysis with the vector autoregressive (VAR) models, pioneered by Bernanke et al. (2005), has led to advances in monetary policy analysis. The new approach bases measurements of monetary policy on large data sets that approximate the true information set of policymakers. This is in contrast to low dimensional VAR models. The FAVAR model summarizes information from large data set by a few factors that are incorporated into VAR models. The first essay investigates the impact of monetary policy on a wide range of macroeconomic indicators for the United States, Canada, the U.K., Japan and France using FAVAR models. I also examine the influence of United States' monetary policy on the other countries in the sample. This essay incorporates between 70 and 80 monthly macro variables for each country. The results show that, first, the FAVAR model eliminates the "price puzzle" response for all countries. Second, monetary policy has plausible impacts on a wide range of economic variables. Third, there is evidence of United States' monetary policy influence on Canada, the U.K. and Japan. In the second essay, I investigate the channels of monetary policy transmission in the United States using the FAVAR models. This essay builds on the debates on whether monetary policy works through the credit channel, in addition to the traditional interest rate channel. I include 154 United States' monthly macro variables. The findings support the existence of the credit channel in the United States. The third essay builds on the seminal work of Taylor (1993) to study the reaction functions of monetary policymakers in the United States, Canada, the U.K. and Japan. I include monthly data on 80 to 150 macro variables in the FAVAR model to investigate the policy reaction functions. The findings show that monetary policymakers react to many variables including capacity utilization rates, unemployment rates, monetary aggregates, exchange rates, and long-term interest rates in addition to the inflation and the output gaps.

Classical Time-Varying FAVAR Models - Estimation, Forecasting and Structural Analysis
Classical Time-Varying FAVAR Models - Estimation, Forecasting and Structural Analysis

Author: Sandra Eickmeier

Publisher:

Published: 2016

Total Pages: 68

ISBN-13:

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We propose a classical approach to estimate factor-augmented vector autoregressive (FAVAR) models with time variation in the factor loadings, in the factor dynamics, and in the variance-covariance matrix of innovations. When the time-varying FAVAR is estimated using a large quarterly dataset of US variables from 1972 to 2007, the results indicate some changes in the factor dynamics, and more marked variation in the factors' shock volatility and their loading parameters. Forecasts from the time-varying FAVAR are more accurate than those from a constant parameter FAVAR for most variables and horizons when computed insample, for some variables in pseudo real time, mostly financial indicators. Finally, we use the time-varying FAVAR to assess how monetary transmission to the economy has changed. We find substantial time variation in the volatility of monetary policy shocks, and we observe that the reaction of GDP, the GDP deflator, inflation expectations and long-term interest rates to an equally-sized monetary policy shock has decreased since the early-1980s.

The Dynamic Impact of Monetary Policy on Regional Housing Prices in the US
The Dynamic Impact of Monetary Policy on Regional Housing Prices in the US

Author: Manfred M. Fischer

Publisher:

Published: 2018

Total Pages: 22

ISBN-13:

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In this study interest centers on regional differences in the response of housing prices to monetary policy shocks in the US. We address this issue by analyzing monthly home price data for metropolitan regions using a factor-augmented vector autoregression (FAVAR) model. Bayesian model estimation is based on Gibbs sampling with Normal-Gamma shrinkage priors for the autoregressive coefficients and factor loadings, while monetary policy shocks are identified using high-frequency surprises around policy announcements as external instruments. The empirical results indicate that monetary policy actions typically have sizeable and significant positive effects on regional housing prices, revealing differences in magnitude and duration. The largest effects are observed in regions located in states on both the East and West Coasts, notably California, Arizona and Florida.

Proxy Structural Vector Autoregressions, Informational Sufficiency and the Role of Monetary Policy
Proxy Structural Vector Autoregressions, Informational Sufficiency and the Role of Monetary Policy

Author: Mirela S. Miescu

Publisher:

Published: 2019

Total Pages:

ISBN-13:

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We show that the contemporaneous and longer horizon impulse responses estimated using small-scale Proxy structural vector autoregressions (SVARs) can be severely biased in the presence of information insufficiency. Instead, we recommend the use of a Proxy Factor Augmented VAR (FAVAR) model that remains robust in the presence of this problem. In an empirical exercise, we demonstrate that this issue has important consequences for the estimated impact of monetary policy shocks in the US. We find that the impulse responses of real activity and prices estimated using a Proxy FAVAR are substantially larger and more persistent than those suggested by a small-scale Proxy SVAR.