Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/234976 
Year of Publication: 
2021
Series/Report no.: 
DIW Discussion Papers No. 1749
Version Description: 
This version: June 18, 2021
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
We develop a structural vector autoregressive framework that combines external instruments and heteroskedasticity for identification of monetary policy shocks. We show that exploiting both types of information sharpens structural inference, allows testing the relevance and exogeneity condition for instruments separately using likelihood ratio tests, and facilitates the economic interpretation of the structural shock of interest. We test alternative instruments and find that narrative and model-based measures are valid, while high-frequency data instruments show signs of invalidity. Finally, we document that monetary shocks identified with both a valid instrument and heteroskedasticity have larger effects on production and prices than monetary shocks identified via an instrument only.
Subjects: 
Monetary policy
structural vector autoregressions
identification with external instrument
heteroskedasticity
Markov switching
JEL: 
E52
C32
E58
E32
Document Type: 
Working Paper

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