Using forecast-augmented VAR evidence to dampen the forward guidance puzzle

Kai Christoffel, Oliver de Groot, Falk Mazelis, Carlos Montes-Galdón

We estimate the effects of interest rate forward guidance (FG) using a parsimonious VAR, augmented with survey forecast data. The identification strategy of FG shocks via sign and zero restrictions is successfully tested by the recovery of true IRFs from simulated data. The identified shocks from the VAR suggest that FG has a stronger effect on macro variables and deviations are more instantaneous compared to the hump-shaped response following unanticipated changes in monetary policy. We apply this evidence to calibrate free parameters of an otherwise estimated DSGE model in order to dampen the FG Puzzle.

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Year of publication:	[2020]
Authors:	Christoffel, Kai ; De Groot, Oliver ; Mazelis, Falk ; Montes-Galdón, Carlos
Publisher:	Frankfurt am Main, Germany : European Central Bank
Subject:	Survey Forecasts \| Bayesian VAR \| Monetary Policy \| Non-standard Measures \| DSGE Models \| Geldpolitik \| Monetary policy \| VAR-Modell \| VAR model \| Prognoseverfahren \| Forecasting model \| Bayes-Statistik \| Bayesian inference \| Dynamisches Gleichgewicht \| Dynamic equilibrium \| DSGE-Modell \| DSGE model

Extent:	1 Online-Ressource (circa 21 Seiten) Illustrationen
Series:	Working paper series / European Central Bank. - Frankfurt, M. : European Central Bank, ISSN 1725-2806, ZDB-ID 2123559-4. - Vol. no 2495 (November 2020)
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Graue Literatur ; Non-commercial literature ; Arbeitspapier ; Working Paper
Language:	English
ISBN:	978-92-899-4412-0
Other identifiers:	10.2866/38381 [DOI] hdl:10419/229109 [Handle]
Classification:	c54 ; E43 - Determination of Interest Rates; Term Structure Interest Rates ; E58 - Central Banks and Their Policies
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10012318803