A0390
Title: Time-varying identification of monetary policy shocks
Authors: Tomasz Wozniak - University of Melbourne (Australia) [presenting]
Annika Camehl - Erasmus University Rotterdam (Netherlands)
Abstract: A new Bayesian heteroskedastic Markov-switching structural vector autoregression is proposed with data-driven time-varying identification. The model selects alternative exclusion restrictions within regimes and, as a condition for the search, allows identification to be verified through heteroskedasticity. It is shown that US data support time variation in US monetary policy shock identification. In the sample-dominating first regime, systematic monetary policy follows a Taylor rule extended by the term spread, effectively curbing inflation. The second regime, gaining more persistence after the global financial and COVID crises, is characterized by a money-augmented Taylor rule, providing economic stimulus and featuring the liquidity effect.
