A Markov switching factor-augmented VAR model for analyzing US business cycles and monetary policy

Publication: Scientific journalJournal articlepeer-review


This paper develops a Markov switching factor-augmented vector autoregression to investigate the transmission mechanisms of monetary policy for distinct stages of the US business cycle. We assume that autoregressive parameters and covariance matrices of the error terms are regime dependent, driven by an unobserved Markov indicator. Endogenously determined transition probabilities are governed by an underlying probit model that features a large set of possible predictors. The empirical findings provide evidence for differences in the transmission of monetary policy shocks that mainly stem from heterogeneity in the responses of financial market quantities.
Original languageEnglish
Pages (from-to)575 - 604
JournalOxford Bulletin of Economics and Statistics
Issue number3
Publication statusPublished - 2018

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 101026 Time series analysis
  • 502025 Econometrics
  • 502018 Macroeconomics

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