{
  "title": "Monetary Policy and Risk-Premium Shocks in Hungary: Results from a Large Bayesian VAR",
  "publication": "IMF Working Papers, November 1, 2011",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/monetary-policy-and-risk-premium-shocks-in-hungary-results-from-a-large-bayesian-var-25335",
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  "summary": "We document the transmission of monetary policy and risk-premium shocks in Hungary, by applying recent advances in the Bayesian estimation of large VAR models.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Documents the transmission of monetary policy and risk-premium shocks in Hungary using recent advances in the Bayesian estimation of large VAR models.\n- The method extracts information from over 100 series, providing a comprehensive description of the impact of monetary policy and risk-premium shocks under the inflation-targeting regime.\n- Finds that most channels of transmission are operational in Hungary despite large liability euroization and high foreign ownership of banks and corporations.\n- Finds that, due to financial stability concerns, monetary policy responds procyclically to risk-premium shocks.\n- Reports that using such a large panel of data improves inflation forecasting performance over smaller models and renders the model suitable for policy purposes."
    },
    {
      "heading": "Methodology",
      "content": "- Applies Bayesian estimation techniques for large Vector Autoregression (VAR) models.\n- Utilizes a dataset comprising over 100 series to \"open the 'black box' of the transmission mechanism.\""
    },
    {
      "heading": "Key Findings",
      "content": "- Most channels of monetary transmission are operational in Hungary despite:\n  - Large liability euroization.\n  - High foreign ownership of banks and corporations.\n- Monetary policy reacts procyclically to risk-premium shocks because of financial stability concerns.\n- Larger-panel (large Bayesian VAR) improves inflation forecasting performance relative to smaller models."
    },
    {
      "heading": "Policy Implications and Recommendations",
      "content": "- Large-sample Bayesian VARs can be suitable tools for policy analysis and forecasting, particularly for inflation forecasting.\n- Policymakers should account for procyclical monetary policy responses to risk-premium shocks driven by financial stability considerations."
    },
    {
      "heading": "Model Performance and Suitability",
      "content": "- The large Bayesian VAR model:\n  - Opens the transmission mechanism to detailed analysis.\n  - Provides improved inflation forecasting performance over smaller models.\n  - Is presented as suitable for policy purposes.\n\n---\n\n Content in this bundle\n\n- wp11259\n  - wp11259 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp11259 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/monetary-policy-and-risk-premium-shocks-in-hungary-results-from-a-large-bayesian-var-25335"
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    "Authors: Adina Popescu, Alina Carare",
    "Published: November 1, 2011",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781463923983.001",
    "Documents the transmission of monetary policy and risk-premium shocks in Hungary using recent advances in the Bayesian estimation of large VAR models.",
    "The method extracts information from over 100 series, providing a comprehensive description of the impact of monetary policy and risk-premium shocks under the inflation-targeting regime.",
    "Finds that most channels of transmission are operational in Hungary despite large liability euroization and high foreign ownership of banks and corporations.",
    "Finds that, due to financial stability concerns, monetary policy responds procyclically to risk-premium shocks.",
    "Reports that using such a large panel of data improves inflation forecasting performance over smaller models and renders the model suitable for policy purposes.",
    "Applies Bayesian estimation techniques for large Vector Autoregression (VAR) models.",
    "Utilizes a dataset comprising over 100 series to \"open the 'black box' of the transmission mechanism.\"",
    "Most channels of monetary transmission are operational in Hungary despite:",
    "Monetary policy reacts procyclically to risk-premium shocks because of financial stability concerns.",
    "Larger-panel (large Bayesian VAR) improves inflation forecasting performance relative to smaller models.",
    "Large-sample Bayesian VARs can be suitable tools for policy analysis and forecasting, particularly for inflation forecasting.",
    "Policymakers should account for procyclical monetary policy responses to risk-premium shocks driven by financial stability considerations.",
    "The large Bayesian VAR model:",
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