Quotation Huber, Florian, De Luigi, Clara. 2018. Debt regimes and the effectiveness of monetary policy. Journal of Economic Dynamics & Control. 93 218-238.


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Abstract

This paper develops a medium-scale non-linear model of the US economy. Our proposed model, a threshold vector autoregression with stochastic volatility, assumes that changes in government debt-to-GDP ratios drive the transition between regimes, capturing low and high debt regimes. The introduction of hierarchical priors enables us to flexibly shrink the empirical model towards the moments implied by a dynamic stochastic general equilibrium model. In the empirical application, we analyze regime-specific monetary policy shocks. Our findings indicate that the effect of monetary policy is less pronounced in ‘high’ debt regimes, pointing towards differences in the underlying monetary policy transmission mechanisms. Forecast error variance decompositions enable us to shed further light on the relative importance of monetary policy shocks within different debt regimes in terms of explaining the variance of forecast errors.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Journal of Economic Dynamics & Control
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, INF-A, STRAT-A, VW-B, WH-A
Language English
Title Debt regimes and the effectiveness of monetary policy
Volume 93
Year 2018
Page from 218
Page to 238
Reviewed? Y
DOI http://dx.doi.org/10.1016/j.jedc.2018.01.027
Open Access N

Associations

People
Huber, Florian (Details)
De Luigi, Clara (Details)
Organization
Institute for Macroeconomics IN (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
1145 Time series analysis (Details)
5300 Economics (Details)
5323 Econometrics (Details)
5371 Macroeconomics (Details)
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