scholarly journals Monetary policy effects on equity returns: application of SVAR identified with high-frequency external instrument

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Woon Wook Jang
Keyword(s):  
Monetary Policy ◽  
Risk Premium ◽  
High Frequency ◽  
Equity Returns ◽  
Structural Vector Autoregression ◽  
Excess Returns ◽  
Identification Approach ◽  
Econometric Approach ◽  
Cash Flow News ◽  
Structural Vector

The purpose of this study is to examine the effects of monetary policy on equity returns by applying an alternative econometric approach. Campbell and Ammer (1993) decomposed unexpected equity excess returns into three news components: risk premium news, real interest rate news and cash-flow news. The literature has determined the monetary policy (MP) effects on these news components. The authors propose an alternative MP shock identification approach to analyze the MP effects on the above-mentioned news components under a structural vector autoregression (SVAR) setup. Under this approach, one can apply an MP indicator in the SVAR, which helps forecast equity excess returns along with its external instruments for identification. Further, this study uses the various recently proposed measures of exogenous MP shocks and Fed information shocks as external instruments, and shows the different patterns of the news components' responses depending on the information in the applied instruments.

scholarly journals Deconstructing Monetary Policy Surprises— The Role of Information Shocks

2020 ◽  
Vol 12 (2) ◽  
pp. 1-43 ◽  
Author(s):  
Marek Jarociński ◽  
Peter Karadi
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Interest Rates ◽  
Stock Prices ◽  
High Frequency ◽  
Structural Vector Autoregression ◽  
Role Of Information ◽  
Structural Vector ◽  
Economic Outlook

Central bank announcements simultaneously convey information about monetary policy and the central bank's assessment of the economic outlook. This paper disentangles these two components and studies their effect on the economy using a structural vector autoregression. It relies on the information inherent in high-frequency co-movement of interest rates and stock prices around policy announcements: a surprise policy tightening raises interest rates and reduces stock prices, while the complementary positive central bank information shock raises both. These two shocks have intuitive and very different effects on the economy. Ignoring the central bank information shocks biases the inference on monetary policy nonneutrality. (JEL D83, E43, E44, E52, E58, G14)

scholarly journals Exiting from quantitative easing

2019 ◽  
Vol 10 (3) ◽  
pp. 1069-1107 ◽  
Author(s):  
Fumio Hayashi ◽  
Junko Koeda
Keyword(s):  
Monetary Policy ◽  
Regime Switching ◽  
Economic Conditions ◽  
Quantitative Easing ◽  
Structural Vector Autoregression ◽  
Policy Regime ◽  
State Of The Economy ◽  
Macroeconomic Effects ◽  
Structural Vector ◽  
Empirical Framework

We propose an empirical framework for analyzing the macroeconomic effects of quantitative easing (QE) and apply it to Japan. The framework is a regime‐switching structural vector autoregression in which the monetary policy regime, chosen by the central bank responding to economic conditions, is endogenous and observable. QE is modeled as one of the regimes. The model incorporates an exit condition for terminating QE. We find that higher reserves at the effective lower bound raise inflation and output, and that terminating QE may be contractionary or expansionary, depending on the state of the economy at the point of exit.

scholarly journals Inflasi Makanan dan Implikasinya terhadap Kebijakan Moneter di Indonesia

2016 ◽  
Vol 17 (1) ◽  
pp. 58-74
Author(s):  
Rulyusa Pratikto ◽  
Mohamad Ikhsan
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Vector Autoregression ◽  
Spillover Effect ◽  
Structural Vector Autoregression ◽  
Inflation Stabilization ◽  
Effect Of Food ◽  
Food Inflation ◽  
Structural Vector ◽  
Effectiveness Of Monetary Policy

Food Inflation and Monetary Policy Implication in IndonesiaControlling food inflation in Indonesia is essential mainly caused by its persistent and relatively significant impact on the poor’s purchasing power compare to other commodities. Thus, the main purpose of this study is to determine the effectiveness of monetary policy on food inflation stabilization in Indonesia. By utilizing Structural Vector Autoregression, the empirical results provided here show that monetary policy does eectively prevent the spillover effect of food to non-food inflation. In addition to that, the exchange rate may play some role in the longer period to affect the volatility of food inflation.Keywords: Monetary Policy; Food Inflation; Structural Vector Autoregression AbstrakPengendalian inflasi makanan penting untuk dilakukan di Indonesia terutama karena dua hal, yaitu sifat inflasi makanan yang persisten dan dampaknya terhadap penurunan daya beli keluarga miskin yang relatif tinggi dibandingkan dengan komoditas lainnya. Dengan demikian, tujuan utama penelitian ini adalah untuk mengetahui efektivitas dari kebijakan moneter terhadap pengendalian inflasi makanan di Indonesia. Dengan menggunakan metode Structural Vector Autoregression, hasil empiris menunjukkan bahwa kebijakan moneter secara efektif dapat mencegah dampak spillover inflasi makanan ke inflasi non-makanan. Selain itu, stabilitas nilai tukar dapat memiliki peran untuk mengurangi volatilitas inflasi makanan terutama pada jangka panjang.

scholarly journals Oil Price Shocks, Systematic Monetary Policy and Economic Activity

2019 ◽  
Vol 58 (1) ◽  
pp. 65-81 ◽  
Author(s):  
Muhammad Zeshan ◽  
Wasim Shahid Malik ◽  
Muhammad Nasir
Keyword(s):  
Monetary Policy ◽  
Jel Classification ◽  
Oil Price ◽  
Oil Price Shocks ◽  
Structural Vector Autoregression ◽  
Price Shocks ◽  
Output Loss ◽  
The Impact ◽  
Auto Regression ◽  
Structural Vector

This study quantifies the impact of oil price shocks and the subsequent monetary policy response on output for Pakistan. It employs a quarterly Structural Vector Auto-regression framework for the period 1993–2015. It first discovers that Hamilton’s (1996) Net Oil Price Increase indicator appropriately reveals most of the oil price shocks hitting Pakistan’s economy. We find that a contractionary monetary policy, resulting from the oil price shocks, contributes to significant output loss in Pakistan. After encountering the Lucas critique, the present study finds that around 42 percent of the output loss is due to the ensuing tight monetary policy. This suggests that the central bank of Pakistan can reduce the impact of oil price shocks by reducing its intervention in the market. JEL Classification: E1, E3, E5 Keywords: Oil Price Shocks, Monetary Policy, Structural Vector Autoregression

THE REGIONAL ASYMMETRIC RESPONSES TO CENTRAL BANK’S MONETARY POLICY IN PAKISTAN

2017 ◽  
Vol 65 (02) ◽  
pp. 351-364
Author(s):  
NASEEM FARAZ ◽  
ZAINAB IFTIKHAR
Keyword(s):  
Monetary Policy ◽  
Impulse Response Functions ◽  
Response Functions ◽  
Structural Vector Autoregression ◽  
Monetary Policy Shocks ◽  
Limited Evidence ◽  
Svar Model ◽  
Policy Shocks ◽  
National Output ◽  
Structural Vector

Literature on differential impacts of monetary policy across regions discusses several factors which may be responsible for asymmetrical effects of monetary policy. As far as Pakistan is concerned, limited evidence is available for both mechanism and impact of monetary policy. In this study, we examine asymmetries in responses of real output of provinces to central bank’s monetary policy in Pakistan. We also attempt to explore the potential sources of these asymmetries. The Structural Vector Autoregression (SVAR) model is employed to examine each province’s response to unanticipated monetary policy shocks. The generalized impulse response functions from SVAR reveal that monetary policy has varied effects across the provinces. In two regions — Punjab and Sindh — monetary policy shocks cause variations in provincial outputs in similar ways. These responses are also comparable to the response of national output to changes in monetary policy but with considerable differences in magnitudes. While other provinces Khyber Pakhtunkhawa (KPK) and Balochistan show less sensitivity to unanticipated change in monetary policy. The less sensitive regions exhibit dissimilar responses both in timings and magnitudes. These dissimilarities in regional responses draw attention to devise an effective national monetary policy that might consider the cross-provincial differences in responses to central monetary policy in Pakistan.

scholarly journals Shock of Monetary Policy Transmission and Macroeconomic Variable in Indonesia: A Structural VAR Approach

2018 ◽  
Vol 14 (2) ◽  
pp. 177-196
Author(s):  
Rizal Rahman H. Teapon ◽  
Rachman Dano Mustafa
Keyword(s):  
Monetary Policy ◽  
Vector Autoregression ◽  
Structural Var ◽  
Structural Vector Autoregression ◽  
Monetary Policy Transmission ◽  
Macroeconomic Variable ◽  
Macroeconomic Variables ◽  
Policy Transmission ◽  
Transmission Of Monetary Policy ◽  
Structural Vector

Abstract: Shock of Monetary Policy Transmission and Macroeconomic Variable in Indonesia: A Structural VAR Approach. The purpose of this paper is to find out how much the shock of monetary policy transmission affects macroeconomic variables in Indonesia and vice versa by using Structural Vector Autoregression (SVAR) model. The results showed that the transmission of monetary policy in Indonesia only gives a weak influence toward inflation, but it greatly stimulates economic growth. However, the shock of macroeconomic variables influences the transmission of monetary policy in Indonesia significantly. Keywords: Structural Vector Autoregression (SVAR), monetary policy, macroeconomic policy.Abstrak: Kejutan Transmisi Kebijakan Moneter dan Variabel Makro Ekonomi di Indonesia: Suatu Pendekatan Structural Vector Autoregression. Tujuan dari tulisan ini adalah untuk mengetahui berapa besar guncangan transmisi kebijakan moneter mempengaruhi variabel makro ekonomi di Indonesia dan sebaliknya, dengan menggunakan model Structural Vector Autoregression (SVAR). Hasil penelitian menunjukan bahwa transmisi kebijakan moneter di Indonesia masih lemah dalam mempengaruhi inflasi tetapi sangat kuat dalam merangsang pertumbuhan ekonomi. Sebaliknya, guncangan variabel makro ekonomi sangat signifikan dalam mempengaruhi transmisi kebijakan moneter di Indonesia. Kata kunci: Structural Vector Autoregression (SVAR), kebijakan moneter, kebijakan makro ekonomi

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