Identifying Monetary Policy in Open Economies
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Date
2009-06-15T20:16:34Z
Authors
Bhuiyan, Mohammad
Keyword
Monetary Policy , VAR Model
Abstract
This thesis estimates the effects of monetary policy shocks by employing vector
auto regressions (VAR). I argue that to the extent the central bank and the private sector
have information not reflected in the VAR, the measurement of policy innovations
is contaminated. These incorrectly estimated policy shocks then generate misleading
results about the effects of monetary policy. This thesis first attempts to figure out
the variables indeed observed by central banks to make monetary policy decisions and
then formulates the monetary policy reaction function by using those variables. Having
identified more realistic monetary policy functions in VAR models, I conclude that
most of the previous puzzling results about the effect of monetary policy shocks might
be due to incorrectly identifying the monetary policy reaction function.