A0400
Title: What do data say about time-variation in monetary policy shock identification?
Authors: Annika Camehl - Erasmus University Rotterdam (Netherlands) [presenting]
Tomasz Wozniak - University of Melbourne (Australia)
Abstract: It is shown that data support time-variation in identification patterns of US monetary policy shocks between January 1960 and May 2022. The monetary policy reaction function is evaluated in the form of Taylor's rule that is potentially extended by additional indicators. In the regime predominate before 2004, shadow interest rates react contemporaneously to the term spread while in the regime mainly present after 2004 this role is taken by the money aggregate. Importantly, the time-varying identification of the structural matrix occurs to be crucial for the persistence of the second regime. To show that, a Bayesian heteroskedastic structural vector autoregressive model is developed with time-varying identification facilitated by Markov-Switching and data-driven regime-specific identification search. This model enables regime-specific identification of structural shocks, time-varying impulse responses, and a swift way to verify identification through heteroskedasticity within a regime.
