2002 018
WORKING PAPER SERIES
Modeling Volcker As A Non-Absorbing State: Agnostic Identification Of A Markov-Switching VAR Michael T. Owyang
Working Paper 2002-018 http://research.stlouisfed.org/wp/2002/2002-018.pdf
August 2002
FEDERAL RESERVE BANK OF ST. LOUIS Research Division 411 Locust Street St. Louis, MO 63102 ______________________________________________________________________________________ The views expressed are those of the individual authors and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors. Federal Reserve Bank of St. Louis Working Papers are preliminary materials circulated to stimulate discussion and critical comment. References in publications to Federal Reserve Bank of St. Louis Working Papers (other than an acknowledgment that the writer has had access to unpublished material) should be cleared with the author or authors. Photo courtesy of The Gateway Arch, St. Louis, MO. www.gatewayarch.com
MODELING VOLCKER AS A NON-ABSORBING STATE: AGNOSTIC IDENTIFICATION OF A MARKOV-SWITCHING VAR
Michael T. Owyang Federal Reserve Bank of St. Louis* 411 Locust Street St. Louis, MO 63102, U.S.A. July 26, 2002
ABSTRACT Recently, models of monetary policy have been constructed to include structural breaks to account for changes in policymaker preferences or operating procedures. These models typically assume that when changes occur, they happen once and for all. In this paper, we allow the policymaker and the economy to switch freely between regimes. We find that not only does the nature and effect of innovations to monetary policy change, but switching the policy rule and the economy's subsequent response can in and of itself alter the path of the economy. We find the switch itself can generate disinflationary dynamics.
Keywords: Monetary policy, regime switching, vector autoregression JEL classification: E52, C51 * The views expressed are those of the author and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System.
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Modeling Volcker As A Non-Absorbing State: Agnostic Identification Of A Markov-Switching VAR Michael T. Owyang
Working Paper 2002-018 http://research.stlouisfed.org/wp/2002/2002-018.pdf
August 2002
FEDERAL RESERVE BANK OF ST. LOUIS Research Division 411 Locust Street St. Louis, MO 63102 ______________________________________________________________________________________ The views expressed are those of the individual authors and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors. Federal Reserve Bank of St. Louis Working Papers are preliminary materials circulated to stimulate discussion and critical comment. References in publications to Federal Reserve Bank of St. Louis Working Papers (other than an acknowledgment that the writer has had access to unpublished material) should be cleared with the author or authors. Photo courtesy of The Gateway Arch, St. Louis, MO. www.gatewayarch.com
MODELING VOLCKER AS A NON-ABSORBING STATE: AGNOSTIC IDENTIFICATION OF A MARKOV-SWITCHING VAR
Michael T. Owyang Federal Reserve Bank of St. Louis* 411 Locust Street St. Louis, MO 63102, U.S.A. July 26, 2002
ABSTRACT Recently, models of monetary policy have been constructed to include structural breaks to account for changes in policymaker preferences or operating procedures. These models typically assume that when changes occur, they happen once and for all. In this paper, we allow the policymaker and the economy to switch freely between regimes. We find that not only does the nature and effect of innovations to monetary policy change, but switching the policy rule and the economy's subsequent response can in and of itself alter the path of the economy. We find the switch itself can generate disinflationary dynamics.
Keywords: Monetary policy, regime switching, vector autoregression JEL classification: E52, C51 * The views expressed are those of the author and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System.
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