The identification of fiscal and monetary policy in a structural VAR |
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Authors: | Mardi Dungey,Ren e Fry |
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Affiliation: | aUniversity of Tasmania, Australia;bCAMA, Australian National University, Australia;cCFAP, University of Cambridge, UK |
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Abstract: | Good economic management depends on understanding shocks from monetary policy, fiscal policy and other sources affecting the economy and their subsequent interactions. This paper presents a new methodology to disentangle such shocks in a structural VAR framework. The method combines identification via sign restrictions, cointegration and traditional exclusion restrictions within a system which explicitly models stationary and non-stationary variables and accounts for both permanent and temporary shocks. The usefulness of the approach is demonstrated on a small open economy where policy makers are actively considering the interaction between monetary and fiscal policies. |
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Keywords: | Identification Fiscal policy Monetary policy SVAR Permanent and transitory shocks Sign restrictions |
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