Active Driver or Passive Victim - On the Role of International Monetary Policy Transmission
Annika Camehl, Gregor von Schweinitz
IWH Discussion Papers,
No. 3,
2023
Abstract
We provide new insights into determinants of international interest rates spillovers across seven advanced economies. To disentangle and quantify their respective importance, we identify country-specific structural monetary policy, demand, and supply equations in a Bayesian structural panel vector autoregressive model. We formulate prior beliefs on magnitudes and signs of contemporaneous structural coefficients (i.e., (semi-)elasticities), based on a standard theoretical multi-country open economy model from the literature. Our findings show that interest rate spillovers occur via an aggregated demand channel. Unexpected monetary tightening causes modest declines in most foreign interest rates, while demand and supply shocks result in increased foreign interest rates. Our results support that central banks respond to changes in the domestic macroeconomic environment induced by domestic or foreign shocks rather than directly reacting to foreign shocks. Spillovers are quantitatively stronger for shocks originating in economically large areas with strong trade linkages.
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Structural Vector Autoregressions with Imperfect Identifying Information
Christiane Baumeister, James D. Hamilton
American Economic Association Papers and Proceedings,
May
2022
Abstract
The problem of identification is often the core challenge of empirical economic research. The traditional approach to identification is to bring in additional information in the form of identifying assumptions, such as restrictions that certain magnitudes have to be zero. In this paper, we suggest that what are usually thought of as identifying assumptions should more generally be described as information that the analyst had about the economic structure before seeing the data. Such information is most naturally represented as a Bayesian prior distribution over certain features of the economic structure.
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Active Driver or Passive Victim - On the Role of International Monetary Policy Transmission ...
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Advances in Using Vector Autoregressions to Estimate Structural Magnitudes
Christiane Baumeister, James D. Hamilton
UC San Diego,
2021
Abstract
This paper discusses drawing structural conclusions from vector autoregressions. We call attention to a common error in estimating structural elasticities and show how to correctly estimate elasticities even in the case when one knows only the effects of a single structural shock and the covariance matrix of the reduced-form residuals. We describe the traditional approach to identification as a claim to have exact prior information about the structural model and propose Bayesian inference as a way to acknowledge that prior information is imperfect or subject to error. We raise concerns about the way that results are typically reported for VARs that are set-identified using sign and other restrictions.
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Disentangling Covid-19, Economic Mobility, and Containment Policy Shocks
Annika Camehl, Malte Rieth
IWH Discussion Papers,
No. 2,
2021
Abstract
We study the dynamic impact of Covid-19, economic mobility, and containment policy shocks. We use Bayesian panel structural vector autoregressions with daily data for 44 countries, identified through sign and zero restrictions. Incidence and mobility shocks raise cases and deaths significantly for two months. Restrictive policy shocks lower mobility immediately, cases after one week, and deaths after three weeks. Non-pharmaceutical interventions explain half of the variation in mobility, cases, and deaths worldwide. These flattened the pandemic curve, while deepening the global mobility recession. The policy tradeoff is 1 p.p. less mobility per day for 9% fewer deaths after two months.
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Drawing Conclusions from Structural Vector Autoregressions Identified on the Basis of Sign Restrictions
Christiane Baumeister, James D. Hamilton
Journal of International Money and Finance,
December
2020
Abstract
This paper discusses the problems associated with using information about the signs of certain magnitudes as a basis for drawing structural conclusions in vector autoregressions. We also review available tools to solve these problems. For illustration we use Dahlhaus and Vasishtha’s (2019) study of the effects of a U.S. monetary contraction on capital flows to emerging markets. We explain why sign restrictions alone are not enough to allow us to answer the question and suggest alternative approaches that could be used.
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On the International Dissemination of Technology News Shocks
João Carlos Claudio, Gregor von Schweinitz
IWH Discussion Papers,
No. 25,
2020
Abstract
This paper investigates the propagation of technology news shocks within and across industrialised economies. We construct quarterly utilisation-adjusted total factor productivity (TFP) for thirteen OECD countries. Based on country-specific structural vector autoregressions (VARs), we document that (i) the identified technology news shocks induce a quite homogeneous response pattern of key macroeconomic variables in each country; and (ii) the identified technology news shock processes display a significant degree of correlation across several countries. Contrary to conventional wisdom, we find that the US are only one of many different sources of technological innovations diffusing across advanced economies. Technology news propagate through the endogenous reaction of monetary policy and via trade-related variables. That is, our results imply that financial markets and trade are key channels for the dissemination of technology.
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Trade Effects of Silver Price Fluctuations in 19th-Century China: A Macro Approach
Makram El-Shagi, Lin Zhang
China Economic Journal,
2020
Abstract
We assess the role of silver price fluctuations in Chinese trade and GDP during the late Qing dynasty, when China still had a bimetallic (silver/copper) monetary system, in which silver was mostly used for international trade. Using a structural VAR (SVAR) with blockwise recursive identification, we identify the impact of silver price shocks on the Chinese economy from 1867, when trade data became available, to 1910, one year before the Qing dynasty collapsed. We find that silver price shocks had a sizable impact on both imports and exports but only a very minor effect on the trade balance, only a marginal impact on growth, and almost no effect on domestic prices. Stronger effects were partly mitigated by inelastic export quantities. Generally, the effect of silver price shocks, while considerable, was only short-lived, displaying no persistence in either direction. We find that the bimetallic system in Qing China might have mitigated a potential positive effect of silver depreciation but did not reverse the effect, which – contrary to claims made in the previous literature – was responsible for neither the worsening trade balance nor the inflation and the quickly increasing imports that occurred during our sample period.
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Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks
Christiane Baumeister, James D. Hamilton
American Economic Review,
No. 5,
2019
Abstract
Traditional approaches to structural vector autoregressions (VARs) can be viewed as special cases of Bayesian inference arising from very strong prior beliefs. These methods can be generalized with a less restrictive formulation that incorporates uncertainty about the identifying assumptions themselves. We use this approach to revisit the importance of shocks to oil supply and demand. Supply disruptions turn out to be a bigger factor in historical oil price movements and inventory accumulation a smaller factor than implied by earlier estimates. Supply shocks lead to a reduction in global economic activity after a significant lag, whereas shocks to oil demand do not.
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Monetary-fiscal Policy Interaction and Fiscal Inflation: A Tale of Three Countries
Martin Kliem, Alexander Kriwoluzky, Samad Sarferaz
European Economic Review,
2016
Abstract
We study the impact of the interaction between fiscal and monetary policy on the low-frequency relationship between the fiscal stance and inflation using cross-country data from 1965 to 1999. In a first step, we contrast the monetary–fiscal narrative for Germany, the U.S., and Italy with evidence obtained from simple regression models and a time-varying VAR. We find that the low-frequency relationship between the fiscal stance and inflation is low during periods of an independent central bank and responsible fiscal policy and more pronounced in times of non-responsible fiscal policy and accommodative monetary authorities. In a second step, we use an estimated DSGE model to interpret the low-frequency measure structurally and to illustrate the mechanisms through which fiscal actions affect inflation in the long run. The findings from the DSGE model suggest that switches in the monetary–fiscal policy interaction and accompanying variations in the propagation of structural shocks can well account for changes in the low-frequency relationship between the fiscal stance and inflation.
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