We propose a novel approach that embeds Rational Expectations (RE) into a low- dimensional structural vector autoregression (SVAR). We establish an instrumental variable procedure internal to the SVAR founded on a purely theoretical framework, which does not rely on any mapping strategy to a...

We discuss combining sign restrictions with information in external instruments (proxy variables) to identify structural vector autoregressive (SVAR) models. In one setting, we assume the availability of valid external instruments. Sign restrictions may then be used to identify further...

Building on a proper selection of macroeconomic variables for constructing a GDP forecasting multivariate model (Kazanas, 2017), this paper evaluates whether alternative Bayesian model specifications can provide greater forecasting accuracy compared to a standard VECM model. To that end, two...

This paper reviews 22 years of UK monetary policy in the pre-inflation targeting period (1971-1992) using official record from the Bank of England Quarterly Bulletin. A transparent definition of policy episodes is used. The empirical analysis shows that output displays the usual hump-shaped...

When the number of variables is larger than the number of structural shocks driving the economy, the associated structural VAR system is said to be singular. We propose an identification method for singular structural VAR models contaminated by noise that combines a collapsing procedure with the...

The global liquidity shock induced by the COVID-19 pandemic raises renewed concern about its impact on the economy. We examine the macroeconomic effect of global liquidity using the Global Vector Autoregression model with the quarterly dataset involving 33 countries. The main empirical results...

In times when short-term policy rates are at or near the zero lower bound, central banks use unconventional policies such as forward guidance and quantitative easing to influence the slope of the yield curve. In this paper, we analyze the dynamic responses of key U.S. macroeconomic variables to...

Starting from the theoretical observation that the identification problem of SVAR models is fundamentally a problem of variable aggregation, we propose a new identification method based on nowcasted macroeconomic data, i.e. on macroeconomic series reconstructed at high-frequency. The idea is...

The Federal Reserve’s (Fed’s) objective, namely, its dovish stance, is often blamed for the so-called Great Inflation. A popular proxy for the former is constructed using the inflation coefficients in estimated Taylor rules. However, for a welfare-optimizing central bank, the estimated...

This paper investigates the role of policy uncertainty associated with Federal Open Market Committee (FOMC) communications plays in transmitting policy shocks. Our measure of monetary policy uncertainty is based on short-term option prices but is orthogonal to the scale of policy shocks. We find...