hero working papers

Information from financial markets and VAR measures of monetary policy

Number: 135
Year: 1998
Author(s): Fabio C. Bagliano (Università di Torino), Carlo Ambrogio Favero (IGIER, Università Bocconi)

Exogenous measures of monetary policy shocks, directly derived from financial market information, are used in close (US) and open (US-Germany) economy VAR models to evaluate the robustness of the dynamic effect of monetary policy obtained from traditional identified VAR. The empirical analysis confirms the main features of the monetary policy transmission mechanism in US and Germany, explicitly addressing the issue of simultaneity between the German policy interest rate and the US dollar-DMark exchange rate.