The Impact of Monetary Policy and Exchange Rate Shocks in Poland: Evidence from a Time-Varying VAR

Arratibel, Olga und Michaelis, Henrike (Dezember 2013): The Impact of Monetary Policy and Exchange Rate Shocks in Poland: Evidence from a Time-Varying VAR. Münchener Wirtschaftswissenschaftliche Beiträge (VWL) 2013-36

Abstract

This paper follows the Bayesian time-varying VAR approach with stochastic volatility developed by Primiceri (2005), to analyse whether the reaction of output and prices to interest rate and exchange rate shocks has changed across time (1996-2012) in the Polish economy. The empirical findings show that: (1) output appears more responsive to an interest rate shock at the beginning of our sample. Since 2000, absorbing this shock has become less costly in terms of output, notwithstanding some reversal since the beginning of the global financial crisis. The exchange rate shock also has a time-varying effect on output. From 1996 to 2000, output seems to decline, whereas for periods between 2000 and 2008 it has a positive significant effect. (2) Consumer prices appear more responsive to an interest rate shock during the first half of our sample, when Poland experienced high inflation. The impact of an exchange rate shock on prices seems to slightly decrease across time.

• Dokumententyp: Paper
• Keywords: Bayesian time-varying parameter VAR, monetary policy transmission, exchange rate passthrough
• Fakultät: Volkswirtschaft ; Volkswirtschaft > Munich Discussion Papers in Economics
• Themengebiete: 300 Sozialwissenschaften > 330 Wirtschaft
• JEL Classification: C30, E44, E52, F41
• Sprache: Englisch

Literaturliste

An, L. and Wang, J. (2011). Exchange Rate Pass-Through: Evidence Based on Vector Autoregression with Sign Restrictions. Open Economies Review, pages 1-22.

Artis, M. and Ehrmann, M. (2006). The Exchange Rate - A Shock-Absorber or Source of Shocks? A Study of four open Economies. Journal of International Money and Finance, 25(6):874-893.

Baumeister, C., Durinck, E., and Peersman, G. (2008). Liquidity, Inflation and Asset Prices in a Time-Varying Framework for the Euro Area. Available at SSRN 1290842.

Baumeister, C. and Peersman, G. (2008). Time-Varying Effects of Oil Supply Shocks on the US Economy. Manuscript, Ghent University.

Benati, L. and Mumtaz, H. (2005). The Great Stability in the UK: Good Policy or Good Luck? manuscript, Research Department, Bank of England.

Bernanke, B., Boivin, J., and Eliasz, P. (2005). Measuring the Effects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach. The Quarterly Journal of Economics, 120(1):387-422.

Bitans, M. (2004). Pass-Through of Exchange Rates to Domestic Prices in East European Countries and the Role of Economic Enviroment. Technical report.

Canova, F. (2007). Methods for Applied Macroeconomic Research, volume 13. Princeton University Press.

Canova, F. and Ciccarelli, M. (2009). Estimating Multicountry VAR Models. International Economic Review, 50(3):929-959.

Canova, F. and de Nicoló, G. (2002). Monetary Disturbances Matter for Business Fluctuations in the G-7. Journal of Monetary Economics, 49(6):1131-1159.

Canova, F. and Pires Pina, J. (2000). Monetary Policy Misspecification in VAR Models. Economics and Business Working Paper, (420).

Ca'Zorzi, M., Hahn, E., and Sánchez, M. (2007). Exchange Rate Pass-Through in Emerging Markets.

Cevik, S. and Teksoz, K. (2012). Lost in Transmission? The Effectiveness of Monetary Policy Transmission Channels in the GCC Countries. Working Paper, No. WP/12/191.

Christiano, L. J., Eichenbaum, M., and Evans, C. L. (1999). Monetary Policy Shocks: What Have We Learned and to What End? Handbook of macroeconomics, 1:65-148.

Cogley, T. (2005). How Fast Can the New Economy Grow? A Bayesian Analysis of the Evolution of Trend Growth. Journal of macroeconomics, 27(2):179-207.

Cogley, T. and Sargent, T. (2001). Evolving Post-World War II US Inflation Dynamics. In NBER Macroeconomics Annual 2001, Volume 16, pages 331-388. MIT Press.

Cogley, T. and Sargent, T. (2005). Drifts and Volatilities: Monetary Policies and Outcomes in the Post WWII US. Review of Economic Dynamics, 8(2):262-302.

Coricelli, F., Jazbec, B., and Masten, I. (2006). Exchange Rate Pass-Through in EMU Acceding Countries: Empirical Analysis and Policy Implications. Journal of Banking & Finance, 30(5):1375-1391.

Creel, J. and Levasseur, S. (2005). Monetary Policy Transmission Mechanisms in the CEECs: How Important are the Differences with the Euro Area? Available at SSRN 826284.

Darvas, Z. (2001). Exchange Rate Pass-Through and Real Exchange Rate in EU Candidate Countries. Technical report, Discussion Paper Series 1/Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank.

Darvas, Z. (2009). Monetary Transmission in three Central European Economies: Evidence from Time-Varying Coefficient Vector Autoregressions. Empirica, pages 1-28.

Égert, B. and MacDonald, R. (2009). Monetary Transmission Mechanism in Central and Eastern Europe: Surveying the Surveyable. Journal of Economic Surveys, 23(2):277-327.

Farrant, K. and Peersman, G. (2006). Is the Exchange Rate a Shock Absorber or a Source of Shocks? New Empirical Evidence. Journal of Money Credit and Banking, 38(4):939.

Faust, J. (1998). The Robustness of Identi_ed VAR Conclusions about Money. In Carnegie-Rochester Conference Series on Public Policy, volume 49, pages 207-244. Elsevier.

Franta, M., Horvath, R., and Rusn_ak, M. (2011). Evaluating Changes in the Monetary Transmission Mechanism in the Czech Republic. Working Papers.

Geweke, J. (1999). Using Simulation Methods for Bayesian Econometric Models: Inference, Development, and Communication. Econometric Reviews, 18(1):1-73.

Jarocínski, M. (2010). Responses to Monetary Policy Shocks in the East and the West of Europe: A Comparison. Journal of Applied Econometrics, 25(5):833-868.

Kirchner, M., Cimadomo, J., and Hauptmeier, S. (2010). Transmission of Government Spending Shocks in the Euro Area: Time Variation and Driving Forces. Tinbergen Institute.

Koop, G. and Korobilis, D. (2010). Bayesian Multivariate Time Series Methods for Empirical Macroeconomics. Now Publishers Inc.

Koop, G. and Potter, S. (2006). The Vector Floor and Ceiling Model. Contributions to Economic Analysis, 276:97-131.

LeSage, J. (1999). Applied Econometrics using MATLAB. Manuscript, Dept. of Economics, University of Toronto.

Lyziak, T., Demchuk, O., Przystupa, J., Sznajderska, A., and Wróbel, E. (2012). Monetary Policy Transmission Mechanism in Poland - What Do We Know in 2011? National Bank of Poland Working Paper No. 116.

McCarthy, J. (2007). Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in some Industrialized Economies. Eastern Economic Journal, 33(4):511.

Mumtaz, H. and Sunder-Plassmann, L. (2010). Time-Varying Dynamics of the Real Exchange Rate: A Structural VAR Analysis.

Nakajima, J., Kasuya, M., and Watanabe, T. (2011). Bayesian Analysis of Time-Varying Parameter Vector Autoregressive Model for the Japanese Economy and Monetary Policy. Journal of the Japanese and International Economies, 25(3):225-245.

Paap, R. and Van Dijk, H. K. (2003). Bayes Estimates of Markov Trends in Possibly Cointegrated Series: An Application to US Consumption and Income. Journal of Business & Economic Statistics, 21(4):547-563.

Pereira, M. and Lopes, A. (2010). Time-Varying Fiscal Policy in the US. Banco de Portugal, Working Paper, 21.

Primiceri, G. (2005). Time Varying Structural Vector Autoregressions and Monetary Policy. Review of Economic Studies, 72(3):821-852.

Raftery, A. and Lewis, S. (1992). How Many Iterations in the Gibbs Sampler. Bayesian statistics, 4(2):763-773.

Sims, C., Stock, J., and Watson, M. (1990). Inference in Linear Time Series Models with Some Unit Roots. Econometrica: Journal of the Econometric Society, pages 113-144.

Sims, C. A. (1992). Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy. European Economic Review, 36(5):975-1000.

Sims, C. A. and Zha, T. (2006). Were there Regime Switches in US Monetary Policy? The American Economic Review, pages 54-81.

Teräsvirta, T. (1994). Specification, Estimation, and Evaluation of Smooth Transition Autoregressive Models. Journal of the American Statistical Association, 89(425):208-218.

Uhlig, H. (1997). Bayesian Vector Autoregressions with Stochastic Volatility. Econometrica: Journal of the Econometric Society, pages 59-73.

Uhlig, H. (2005). What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure. Journal of Monetary Economics, 52(2):381-419.