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The Dynamic Effects Of Money: Combining Short-Run And Long-Run Identifying Restrictions Using Bayesian Techniques

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  • William D. Lastrapes

Abstract

This paper proposes a Bayesian approach to incorporating specification and identification uncertainty into a VAR analysis of the dynamic effects of money supply shocks on the macroeconomy. The approach follows Poirier (1991) in averaging over discrete model specifications in forming posterior densities of the dynamic responses to such shocks. Two distinct means of identifying money supply shocks are considered here: one that imposes contemporaneous restrictions, and one that imposes long-run monetary neutrality. I estimate bounds on dynamic responses that account for specification and parameter uncertainty, and find strong evidence of short-run real effects of money on the economy, including a liquidity effect for both long-term and short-term interest rates. Furthermore, some results differ substantially across identifying restrictions if model uncertainty is ignored. © 1998 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog

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  • William D. Lastrapes, 1998. "The Dynamic Effects Of Money: Combining Short-Run And Long-Run Identifying Restrictions Using Bayesian Techniques," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 588-599, November.
    • Handle: RePEc:tpr:restat:v:80:y:1998:i:4:p:588-599
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    Cited by:

    1. W. Douglas McMillin, 2001. "The Effects of Monetary Policy Shocks: Comparing Contemporaneous versus Long‐Run Identifying Restrictions," Southern Economic Journal, John Wiley & Sons, vol. 67(3), pages 618-636, January.
    2. Fisher, Lance A. & Huh, Hyeon-seung, 2019. "An IV framework for combining sign and long-run parametric restrictions in SVARs," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
    3. Yongseung Han & Myeong Hwan Kim, 2023. "Monetary shocks on the Korean stock index: structural VAR analysis," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 13(1), pages 85-102, March.
    4. Lichao Cheng & Yi Jin & Zhixiong Zeng, 2011. "Asset Prices, Monetary Policy, and Aggregate Fluctuations: An Empirical Investigation," Monash Economics Working Papers 13-11, Monash University, Department of Economics.
    5. W. Douglas McMillin & Keuk-Soo Kim, 2001. "Symmetric versus Asymmetric Lag Structures in Vector Autoregressive Models: A Monte Carlo Analysis with an Application to Estimating the Effects of Monetary Policy Shocks," Departmental Working Papers 2001-01, Department of Economics, Louisiana State University.

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