Veranstaltungen des DIW Berlin/
Events of DIW Berlin

9. Nov 2016

DIW Seminar on Macroeconomics and Financial Markets Monetary Policy Shocks, Sign Restrictions, and Asset Prices: A Novel Approach for Analyzing Sign Restricted Models

A central question in the empirical monetary policy literature is how do asset prices respond to an unexpected monetary policy shock. We provide empirical evidence on this issue by augmenting the VAR model specification of Uhlig (2005) with the S&P 500 Composite Index, and estimating the model on monthly US data. We use the sign restrictions put forth in Uhlig (2005) as identifying assumptions. The sign-restricted SVAR impulse responses point towards a positive asset price response to an increase in the monetary policy instrument. As it turns out, however, the resulting identified monetary policy shocks correlate only weakly with the monetary policy shock series of Romer and Romer (2004) that we view as a benchmark series for monetary policy shocks. We show that this finding matters greatly when analyzing (structural) impulse responses, and we propose to restrict attention to those (sign-restricted) specifications that yield monetary policy shocks that are highly correlated with the Romer and Romer (2004) series. Concentrating only on these (sign-restricted) specifications uncovers a mildly negative response of asset prices to an increase in the monetary policy instrument.

You can find the paper here.

  • Gabor Uhrin, Universität Göttingen

  • Ort
    Gustav-Schmoller-Raum DIW Berlin im Quartier 110 Raum 3.3.002A Mohrenstraße 58 10117 Berlin
    im DIW Berlin
    Tel.: +49 30 89789 581