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Dynamics and Interactions of Monetary Policy and Macroeconomic Variables: Empirical Investigation in the UK Economy with Bayesian VAR

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  • Pervin, Shahida

Abstract

Applying the MCMC algorithm for time varying Bayesian VAR model, I have estimated the impulse response, stochastic volatility and forecast error variance decomposition. The model allows both parameters and stochastic volatility to vary. The impulse response of unemployment, inflation and interest rate to the interest rate shock using the UK data during 1971:Q1-2016:Q4 has taken place for a horizon of 40 quarters. The obtained result indicates that the response to interest rate shock does not decay entirely and the shocks have substantial effect on error variance in the forecast horizon, and the stochastic volatility has reduced over time except unemployment.

Suggested Citation

  • Pervin, Shahida, 2018. "Dynamics and Interactions of Monetary Policy and Macroeconomic Variables: Empirical Investigation in the UK Economy with Bayesian VAR," MPRA Paper 91816, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:91816
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary Policy; Macroeconomic Variables: UK Economy; Bayesian VAR.;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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