Forward-looking information in VAR models and the price puzzle

• 成果类型: Article
• 署名作者: Brissimis, Sophocles N.; Magginas, Nicholas S.
• 署名单位: European Central Bank; Bank of Greece; University of Piraeus; Athens University of Economics & Business
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2005.05.014
• 发表日期: 2006
• 页码: 1225-1234
• 关键词: monetary transmission mechanism; VAR models; Fed Funds futures; Price puzzle

摘要

With a view to addressing the major disadvantage of the VAR model, namely the inadequate description of the central bank reaction function, we propose a VAR specification that proves successful in solving the price puzzle featuring in monetary VARs for the US. This specification consists in augmenting a standard VAR with two forward-looking variables: the federal funds futures rate (or alternatively a money market forward rate) reflecting monetary policy expectations and a composite leading indicator of economic activity. These two variables appear to effectively control for the information set that the Federal Reserve may use in monetary policy decision-making. With this modification, theory-consistent responses to monetary policy shocks are obtained. (c) 2006 Elsevier B.V. All rights reserved.