structural VAR

SUMMARY This paper proposes a Bayesian, graph-based approach to identification in vector autoregressive (VAR) models. In our Bayesian graphical VAR (BGVAR) model, the contemporaneous and temporal causal structures of the structural VAR model are represented by two different graphs. We also provide an efficient Markov chain Monte Carlo algorithm to estimate jointly the two causal structures and the parameters of the reduced-form VAR model. The BGVAR approach is shown to be quite effective in dealing with model identification and selection in multi-variate time series of moderate dimension, as those considered in the economic literature. In the macroeconomic application the BGVAR identifies the relevant structural relationships among 20 US economic variables, thus providing a useful tool for policy analysis. The financial application contributes to the recent econometric literature on financial interconnectedness. The BGVAR approach provides evidence of a strong unidirectional linkage from financial to non-financial super-sectors during the 2007–2009 financial crisis and a strong bidirectional linkage between the two sectors during the 2010–2013 European sovereign debt crisis.

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The rapid increase in Nigeria's domestic debt has raised many questions about fiscal sustainability of current economic policies which is intensified by short maturity period of most government domestic debts, and the fact that the banking sector still remains the dominant holder of Federal Government domestic debt instruments to finance huge fiscal deficits have negative implications on the private sector in Nigeria. Hence, this study examines the impact of domestic debt on credit to private sector on Nigeria's economic growth between the periods of 1970 to 2015 adopting the Structural VAR technique of estimation to investigate the response of credits to private sector to innovations from domestic debt. This study concludes that since domestic debt induces prolonged crowding out effect on the credits to private sector in Nigeria, the federal government should carryout fiscal reforms in order to stem the current crowding out effect of domestic debt policy through restructuring and rescheduling of domestic debt

Abstract: This paper examines the impact of monetary policy and a range of sector-specific and macroeconomic shocks on the Australian housing market using quarterly data for a period of 1974-2008. The paper develops a structural vector autoregressive (SVAR) model based ...

The recent international events attract the attention to study the behaviour of the credit market of a small open economy such as Mexico. The objective of this assignment is to assess the forecast from the term structure of the Mexican government bonds using econometrics methods. Data analysis found that movement of short-term rates presents a higher volatility rather than long-term, bonds of different maturities tend to move towards the same direction and most often the term-structure has a positive slope. The empirical results show that, overall, adding more information as VAR models does produce better forecast performance than ARIMA, for short-term yields. Structural analysis suggests that domestic economic shocks, such as monetary policy and aggregate demand shocks, have a relevant influence over short-term bonds. Meanwhile international impacts are more important for the bonds at the high-end of the curve. Finally, although the economic outlook is unclear for the next year, the out-of-sample forecast exercise expects a positive slope of the yield curve in the next 12 months.

In this paper, we try to shed light on the following question «Can the New Neoclassical Synthesis presuppositions be validated on the Tunisian business cycle? " To do this, we adopt structural VAR model for a small open economy after describing the stylized facts. The study examines five types of shocks: external shock, financial shock, inflation shock, monetary shock, and supply shock. According to the dynamic impulse responses function, supply shock, monetary shock, and external shock have an effect on the Tunisian business cycle. We also note that the effects of the first two shocks are transitory and deeper compared to the external shock. The latter shock shows a persistent effect on the Tunisian economic fluctuations in the long term. This result is also confirmed by the variance decomposition results. Firstly, the paper finds compatibility between stylized facts and the structural VAR model estimations. Secondly, the estimations highlight in particular the importance of monetary shock on the real sphere of the Tunisian economy. The results allow us to confirm the assumptions of the New Neoclassical Synthesis on a small open economy such as Tunisia.

This paper studies the impact of the main external shocks which the eurozone and member states have undergone since the start of the 2000s. Such shocks have been monetary (drop in global interest rates), financial (two stock market crises) and real (rising oil prices and an accumulation of global current account imbalances). We have used a structural VAR (SVAR) methodology, on the basis of which we have defined four structural shocks: external, supply, demand and monetary. The estimates obtained using SVAR models enabled us to determine the impact of these shocks on the eurozone and its member countries. The study highlights the diversity of reactions inside the eurozone. The repercussions of the oil and monetary shocks were fairly similar in all eurozone countries - excepting the Netherlands and the United Kingdom - but financial crises and global imbalances have had very different effects. External shocks explain one-fifth of the growth differential and current account balance var...

This paper shows how large-dimensional dynamic factor models are suitable for structural analysis. We argue that all identification schemes employed in structural vector autoregression (SVAR) analysis can be easily adapted in dynamic factor models. Moreover, the “problem of fundamentalness,” which is intractable in SVARs, can be solved, provided that the impulse-response functions are sufficiently heterogeneous. We provide consistent estimators for the impulse-response functions and for (n, T) rates of convergence. An exercise with U.S. macroeconomic data shows that our solution of the fundamentalness problem may have important empirical consequences.

th August 2009 Literature shows that exchange rates are largely unpredictable, and that a simple random walk outperforms structural exchange rate models. In order to determine whether fundamentals explain exchange rate behaviour in South Africa, the two approaches to exchange rate forecasting - the technical and fundamental approach - will be compared. Various univariate time series models, including the random walk model, will be compared to various multivariate time series models (using the MAD/mean ratio), combining the two approaches. The determinants of the South African exchange rate are identified, and these determinants are used to specify multivariate time series models for the South African exchange rate. The multivariate models (VARMA) outperformed the univariate models (except for the Random walk model) in the short-run forecasts, one step ahead, while the multivariate models, performed better in the longer-run forecasts. To improve the accuracy of especially the multiva...

ABSTRACT ABSTRACT In recent years The Central Reserve Bank of Perú has made important progress in attaining its goal of price stability. Since 1994, inflation rates were kept within its announced target ranges (6,5 percent in 1997 and 6 percent in 1998), in spite of two thirds of domestic banking deposits being denominated in dollars as consequence of the hyperinflation process of 1988-1990. Despite dollarization of asset holdings, Monetary Policy has proved,to be effective since current transactions are primarily denominated,in domestic currency. First, we identify VARs of prices, output and monetary aggregates using procedures of Christiano, Eichenbaum and Evans (1996) and Sims and Zha (1995). The VAR includes real and nominal variables and focuses on the role of domestic and foreign components,of M3 in explaining the variance of inflation. Results show that: •,Shocks to domestically denominated,cash holdings explain most of the variance ofinflation •,Fiscal discipline is important because of its impact on aggregate demand. •,The Central Bank seems to react inversely to positive deviations of forecasted inflation from its target range. This finding is stronger since 1994, when the Central Bank,in co-ordination with the Finance Ministry, began to announce the target range for the inflation rate. Second, this paper also examines which indicator of monetary policy operations best explains Central Bank reaction to shocks in the money,and reserves markets. It does so by applying the structural VAR approach proposed by Bernanke and Mihov (1995). It extends this approach by introducing the exchange market interventions as an additional operating instrument of the Central Bank. The results show,that non- borrowed reserves are the optimal indicator of the Central Reserve Bank of Perú monetary policy, although we cannot reject the interest rate of the Central Bank Certificates of Deposits and the base money,(mainly composed,by household cash holdings: 75 percent). Taking these results together show,that inflation targets have become,the most important factor in the setting of monetary policy instruments in Perú. To achieve the target, The Central Reserve Bank of Perú uses a variety of different indicators of monetary policy operations which depend on monetary conditions. ,,,,,,, ,,,,,,, Preliminary version. This paper is part of the CCBS’s Project on Intermediate Targets in Developing and Transitional Economies. Any opinions expressed are those of the author and not those of the Centre for Central Banking Studies neither those of the Central Reserve Bank of Perú.

This paper evaluates the effect of shocks in government investment on private investment and national income, focusing on “crowding-in” or “crowding-out” effect in India. Recent studies do not deal with this issue by taking account of the heterogeneous effect of public investment as regards to infrastructure. Hence, I divide government investment into infrastructure vs non-infrastructure. The study uses structural vector auto-regressions (SVAR) and impulseresponse-functions analysis to evaluate the dynamic change in private investment and income. The study finds evidence of the crowding-out effect of government investment, which is mainly due to the non-infrastructure part of government investment. Private investment has a larger effect on income than both types of public investment. The effect on income due to the infrastructure component of public investment is larger than the noninfrastructure component in both the short-term and medium term. However, government investment in non-infrastructure continued to dominate its infrastructure component during the period of this study. Private investment is vital to achieve higher growth in market-led economies and public investment should play a complementary role. Hence, the Indian government should design policies to attract more investment expenditure in infrastructure and other productive activities such as the development of human capital so as to crowd-in private investment.