On the evolution of the monetary policy transmission mechanism

G.M. Koop, R. Leon-Gonzalez, R. Strachan

Research output: Contribution to journalArticlepeer-review

121 Citations (Scopus)

Abstract

This paper investigates whether the monetary transmission mechanism has changed or whether apparent changes are due to changes in the volatility of exogenous shocks. Also, the question of whether any changes have been gradual or abrupt is considered. A mixture innovation model is used which extends the class of time-varying vector autoregressive models with stochastic volatility. The advantage of our extension is that it allows us to estimate whether, where, when and how parameter change is occurring. Our empirical results indicate that the transmission mechanism, the volatility of exogenous shocks and the correlations between exogenous shocks are all changing.
Original languageEnglish
Pages (from-to)997-1017
Number of pages20
JournalJournal of Economic Dynamics and Control
Volume33
Issue number4
DOIs
Publication statusPublished - Apr 2009

Keywords

  • structural VAR
  • monetary policy
  • Bayesian
  • mixture innovation model
  • time-varying parameter model

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