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Do Measures of Monetary Policy in a VAR Make Sense?

Author

Listed:
  • Rudebusch, G.D.

Abstract

In many VARs, monetary policy shocks are identified with the least squares residuals from a regression of the federal funds rate on an assortment of variables. Such regressions appear to be structurally fragile and are at odds with other evidence on the nature of the Fed's reaction function; furthermore, the residuals from these regressions have little correlation with funds rate shocks that are derived from forward-looking financial markets.

Suggested Citation

  • Rudebusch, G.D., 1996. "Do Measures of Monetary Policy in a VAR Make Sense?," Papers 269, Banca Italia - Servizio di Studi.
    • Handle: RePEc:fth:banita:269
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    Keywords

    MONETARY POLICY; ECONOMETRICS; CENTRAL BANKS; FINANCIAL MARKET;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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