Title: Exploring effects of conventional and unconventional monetary policies: An infinite VAR in data-rich environment
Authors: Giacomo Tizzanini - Prometeia SpA (Italy)
Lorenzo Prosperi - Prometeia SpA (Italy)
Emanuele De Meo - Prometeia SpA (Italy) [presenting]
Lea Zicchino - Prometeia SpA (Italy)
Abstract: The aim is to extend the empirical literature on domestic and international effects of conventional (CMPs) and unconventional monetary policies (UMPs, i.e. asset purchase programs and helicopter money) in 11 advanced and emerging countries, proposing a new econometric framework in a data-rich environment. Our approach is based on four building blocks. First, we explore the inter-connectedness of international real and financial variables with network analysis by estimating a global adjacency matrix. Second, we model each country as a small-open economy by means of local factor-augmented vector error-correction models with weakly exogenous foreign variables derived from the global adjacency matrix. Third, we estimate the global solution of the model with an infinite-dimensional VAR (IVAR). Fourth, we identify monetary policy shocks relying on a combination of sign restrictions and generalized impulse-response functions. Our findings are the following. First, UMPs are generally more effective in sustaining domestic business cycles and inflation rates than CMPs. Second, helicopter money appears preferable as a boost to domestic output growth, whereas evidence on its ability to sustain domestic inflation is mixed across countries. Third, both UMPs exhibit higher spillover to foreign countries compared to CMPs. Finally, among EMU countries, helicopter money would especially benefit output growth in Germany and Italy.