Inference in Structural Vector Auto Regressions When the Identifying Assumptions are Not Fully Believed: Re-Evaluating the Role of Monetary Policy in Economic Fluctuations

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)

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Monetary policy transmission mechanisms in Indonesia: revisiting the role of Divisia money

Economic Annals-ХХI ◽

10.21003/ea.v185-09 ◽

2020 ◽

Vol 185 (9-10) ◽

pp. 91-98

Author(s):

Maggie May-Jean Tang ◽

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Chin-Hong Puah ◽

I Gusti Ayu Purnamawati ◽

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...

Keyword(s):

Monetary Policy ◽

Interest Rates ◽

Monetary Policy Transmission ◽

Vector Autoregressive ◽

Transmission Mechanisms ◽

Long Run ◽

Svar Model ◽

Policy Transmission ◽

Structural Vector

This study examines the performance of monetary policy transmission mechanisms in Indonesia from the money view. The best choice of a monetary policy transmission channel has been a topic of debate for many years among researchers as well as central banks. This is mainly due to the inconsistent performance of different channels across countries and period of time. Therefore, it is crucial for policymakers to have a prior understanding of the strengths of the various monetary policy transmission channels. The role of Divisia money in the process of transmission mechanism has also been considered in the Structural Vector Autoregressive (SVAR) model of this study with eight variables and quarterly data from 1984Q1 to 2019Q4. In Indonesia, interest-rates are the major tool used by the central bank to achieve the targeted inflation rate. However, our empirical analysis has shown otherwise, suggesting that other channels are better in ensuring the transmission smoothness of the monetary policy. In addition, depending on whether a short- or long-run effect is desired, a different channel should be adopted to transmit the intended impact. This study has affirmed the superiority of Divisia money since most of the fluctuations in the key domestic macroeconomic variables in Indonesia can be explained by the monetary aggregate.

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Determinants of foreign exchange reserves in Serbia and North Macedonia

Economic Annals ◽

10.2298/eka2026103b ◽

2020 ◽

Vol 65 (226) ◽

pp. 103-120

Author(s):

Mile Bosnjak ◽

Vlatka Bilas ◽

Gordana Kordic

Keyword(s):

Monetary Policy ◽

Quantile Regression ◽

Foreign Exchange ◽

Economic Fluctuations ◽

Foreign Exchange Reserves ◽

Quarterly Data ◽

Regression Approach

This paper employs a quantile regression approach to explore the determinants and properties of international foreign exchange reserves in Serbia and North Macedonia, at various foreign exchange levels. The observed period covers quarterly data for 2005q1-2019q1. The results reveal quantile-dependent determinants of foreign exchange reserves and enable comparison between the two countries, showing co-movements between monetary policy and economic fluctuations. Following the estimates obtained in this research, the paper compares the role of foreign exchange reserves in Serbia and North Macedonia.

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