1. bookVolume 5 (2016): Issue 2 (May 2016)
Journal Details
License
Format
Journal
eISSN
2336-9205
First Published
11 Mar 2014
Publication timeframe
3 times per year
Languages
English
Open Access

Measuring the Channels of Monetary Policy Transmission: A Factor-Augmented Vector Autoregressive (Favar) Approach

Published Online: 20 May 2016
Volume & Issue: Volume 5 (2016) - Issue 2 (May 2016)
Page range: 5 - 40
Received: 25 Jan 2016
Accepted: 12 Feb 2016
Journal Details
License
Format
Journal
eISSN
2336-9205
First Published
11 Mar 2014
Publication timeframe
3 times per year
Languages
English
Abstract

There is more consensus on the effects of monetary policy than its transmission mechanism. Two channels of transmission mechanisms are the conventional interest rate channel and the credit channel. I investigate the channels of monetary policy transmission in the U.S. using the factor-augmented vector autoregressive (FAVAR) models developed by Bernanke, Boivin & Eliasz (2005). The newly developed FAVAR approach allows the researcher to include all relevant macroeconomic variables in the model and analyze them. Therefore, the FAVAR models span a larger information set and generate better estimates of impulse response functions than the commonly used vector autoregressive (VAR) models that utilize only 4–8 variables. I include 154 monthly U.S. time series variables for the period 1970–2014. The findings support the existence of the credit channel in the U.S. The conclusion remains the same when the non-borrowed reserve operating regime (October 1979–October 1982) is removed from the sample period.

Keywords

JEL

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