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Inflation target and inflation volatility informed VAR evidence on monetary policy shock transmission

We enrich a standard monetary VAR with information about a) the central bank's (implicit) inflation target, using estimates from a theoretical DSGE model or the unobserved components model of Stock andWatson (2007), and b) inflation volatility, using estimates from a model with stochastic volatility. Both types of measures provide information that proves important in the nominal interest rate shock identication in that it strongly alleviates or removes the existence of a price puzzle. In addition to the improved identification of nominal interest rate shocks, our enriched VAR allows to consider the effects of changes in the monetary stance other than the ones reflected in the short rate, i.e., the effects of shifts in the inflation target or changes in inflation volatility.

Date:24 Sep 2018 →  24 Sep 2022
Keywords:Monetary Policy, DSGE model, VAR model, Inflation target, Inflation volatility
Disciplines:Applied economics, Economic history, Macroeconomics and monetary economics, Microeconomics, Tourism, Economic development, innovation, technological change and growth, History
Project type:PhD project