Paper #420

Title:

Monetary policy misspecification in VAR models

Authors:

Fabio Canova and Joaquim Pires Pina

Date:

October 1998 (Revised: September 1999)

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.

Keywords:

General equilibrium, monetary policy, identification, structural VARs

JEL codes:

C32, C68, E32, E52

Area of Research:

Macroeconomics and International Economics

Published in:

Chapter in book ed. by Diebolt and Kritsou, Springer and Verlag, 2005
With the title:
Advances in Macroeconomics

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