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Measuring the impact of unconventional monetary policy on the US business cycle

Huber, Florian and Fischer, Manfred M. (2015) Measuring the impact of unconventional monetary policy on the US business cycle. Working Papers in Regional Science, 2015/01. WU Vienna University of Economics and Business, Vienna.

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Abstract

The paper estimates a dynamic macroeconometric model for the US economy that captures two important features commonly observed in the study of the US business cycle, namely the strong co-movement of key macroeconomic quantities, and the distinction between expansionary and recessionary phases. The model extends the factor-augmented vector autoregressive model of Bernanke et al. (2005) by combining Markov switching with factor augmentation, modeling the Markov switching probabilities endogenously, and adopting a full Bayesian estimation approach which uses shrinkage priors for several parts of the parameter space. Exploiting a large data set for the US economy ranging from 1971:Q1 to 2014:Q2, the model is applied to measure not only the dynamic effects of unconventional monetary policy within distinct stages of the business cycle, but also the dynamic response of the recession probabilities, based on conducting counterfactual simulations. The results obtained provide new insights on the effect of monetary policy under changing business cycle phases, and highlight the importance of discriminating between expansionary and recessionary phases of the business cycle when analyzing the impact of monetary policy on the macroeconomy. (authors' abstract)

Item Type: Paper
Keywords: Non-linear FAVAR / business cycle / monetary policy / structural model / US economy
Classification Codes: JEL C30, E52, F41, E32
Divisions: Departments > Sozioökonomie > Wirtschaftsgeographie und Geoinformatik > Fischer
Depositing User: ePub Administrator
Date Deposited: 13 May 2015 11:04
Last Modified: 23 Nov 2016 23:26
URI: http://epub.wu.ac.at/id/eprint/4543

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