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Monetary policy shocks over the business cycle: Extending the Smooth Transition framework

Author

Listed:
  • Martin Bruns

    (University of East Anglia)

  • Michele Piffer

    (King's College London)

Abstract
We extend the Smooth Transition Vector Autoregressive model to allow for identification via a combination of external instruments and sign restrictions, while estimating rather than calibrating the parameters ruling the nonlinearity of the model. We hence o er an alternative to using the recursive identification with selected calibrated parameters, which is the main approach currently available. We use the model to study how the effects of monetary policy shocks change over the business cycle. We show that financial variables, inflation and output respond to a monetary shock more in a recession than in an expansion, in line with the predictions from the financial accelerator literature.

Suggested Citation

  • Martin Bruns & Michele Piffer, 2021. "Monetary policy shocks over the business cycle: Extending the Smooth Transition framework," University of East Anglia School of Economics Working Paper Series 2021-07, School of Economics, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:ueaeco:2021-07
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    Cited by:

    1. Rothfelder, Mario & Boldea, Otilia, 2016. "Testing for a Threshold in Models with Endogenous Regressors," Discussion Paper 2016-029, Tilburg University, Center for Economic Research.
    2. Velasco, Sofia, 2024. "Asymmetries in the transmission of monetary policy shocks over the business cycle: a Bayesian Quantile Factor Augmented VAR," Working Paper Series 2983, European Central Bank.
    3. Robin Braun & Ralf Brüggemann, 2017. "Identification of SVAR Models by Combining Sign Restrictions With External Instruments," Working Paper Series of the Department of Economics, University of Konstanz 2017-07, Department of Economics, University of Konstanz.
    4. Lukas Berend & Jan Pruser, 2024. "The Transmission of Monetary Policy via Common Cycles in the Euro Area," Papers 2410.05741, arXiv.org, revised Nov 2024.
    5. Alpanda, Sami & Granziera, Eleonora & Zubairy, Sarah, 2021. "State dependence of monetary policy across business, credit and interest rate cycles," European Economic Review, Elsevier, vol. 140(C).
    6. Mr. Anil Ari & Mr. Carlos Mulas-Granados & Mr. Victor Mylonas & Mr. Lev Ratnovski & Wei Zhao, 2023. "One Hundred Inflation Shocks: Seven Stylized Facts," IMF Working Papers 2023/190, International Monetary Fund.

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    More about this item

    Keywords

    Nonlinear models; proxy SVARs; monetary policy shocks; sign restrictions.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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