Institutional Affiliation: University of Illinois at Urbana-Champaign
|Regional Monetary Policies and the Great Depression|
with , : w26695
The Great Depression provides a unique setting to test the impact of monetary policies on economic activity in a monetary union within the same country during a severe crisis. Until the mid-1930s, the 12 Federal Reserve banks had the ability to set their own discount rates and conduct independent monetary policy. Using a structural VAR with sign restrictions and new monthly data for each Federal Reserve district between 1923-33, we extract a national monetary policy factor from the 12 discount rates of the Federal Reserve banks. We then identify the region-specific component for each Fed district by subtracting the common factor component of monetary policy from the discount rate of each Federal Reserve bank. Our findings suggest that there was significant variation in regional monetary po...
|Sign Restrictions in Bayesian FaVARs with an Application to Monetary Policy Shocks|
with : w21738
We propose a novel identification strategy of imposing sign restrictions directly on the impulse responses of a large set of variables in a Bayesian factor-augmented vector autoregression. We conceptualize and formalize conditions under which every additional sign restriction imposed can be qualified as either relevant or irrelevant for structural identification up to a limiting case of point identification. Deriving exact conditions we establish that, (i) in a two dimensional factor model only two out of potentially infinite sign restrictions are relevant and (ii) in contrast, in cases of higher dimension every additional sign restriction can be relevant improving structural identification. The latter result can render our approach a blessing in high dimensions. In an empirical applicatio...