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

Florian Huber, Manfred M. Fischer

Publication: Working/Discussion PaperWU Working Paper

19 Downloads (Pure)

Abstract

This paper develops a multivariate regime switching monetary policy model for the US economy. To exploit a large dataset we use a factor-augmented VAR with discrete regime shifts, capturing distinct business cycle phases. The transition probabilities are modelled as time-varying, depending on a broad set of indicators that influence business cycle movements. The model is used to investigate the relationship between business cycle phases and monetary policy. Our results indicate that the effects of monetary policy are stronger in recessions, whereas the responses are more muted in expansionary phases. Moreover, lagged prices serve as good predictors for business cycle transitions.
Original languageEnglish
Place of PublicationVienna
PublisherWU Vienna University of Economics and Business
Publication statusPublished - 1 Aug 2015

Publication series

NameDepartment of Economics Working Paper Series
No.201

WU Working Paper Series

  • Department of Economics Working Paper Series

Cite this