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Monetary policy and information shocks in a block-recursive SVAR

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  • Keweloh, Sascha A.
  • Hetzenecker, Stephan
  • Seepe, Andre

Abstract

This study introduces a new estimator that combines block-recursive restrictions with higher-order moment conditions and non-Gaussian shocks. The proposed estimator improves the accuracy of the estimation, simplifies labeling, and allows for relaxing the independence and non-Gaussianity assumptions in comparison to a purely data-driven approach. We use the approach to disentangle the interaction of stock prices and interest rates into monetary policy and stock market information shocks. We find that traditional monetary policy shocks move interest rates and stock prices in opposite directions, whereas information shocks move both variables in the same direction. Moreover, we utilize high-frequency data from FOMC announcements to derive a proxy for central bank information shocks and show that these shocks are statistically relevant for the low-frequency stock market information shock.

Suggested Citation

  • Keweloh, Sascha A. & Hetzenecker, Stephan & Seepe, Andre, 2023. "Monetary policy and information shocks in a block-recursive SVAR," Journal of International Money and Finance, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:jimfin:v:137:y:2023:i:c:s0261560623000931
    DOI: 10.1016/j.jimonfin.2023.102892
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    Cited by:

    1. Sascha A. Keweloh, 2023. "Structural Vector Autoregressions and Higher Moments: Challenges and Solutions in Small Samples," Papers 2310.08173, arXiv.org.
    2. Gabriele Fiorentini & Alessio Moneta & Francesca Papagni, 2024. "Identification of one independent shock in structural VARs," LEM Papers Series 2024/28, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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