Monetary Policy and Risk-Premium Shocks in Hungary: Results from a Large Bayesian VAR

 
Author/Editor: Carare, Alina ; Popescu, Adina
 
Publication Date: November 01, 2011
 
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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. The method allows extracting information from over 100 series, opening the "black box" of the transmission mechanism to provide the most comprehensive description to date of the impact of these two shocks on the economy under the inflation-targeting regime. We find novel evidence that most of the channels of transmission are operational in Hungary, in spite of large liability euroization and high foreign ownership of banks and corporations. Due to financial stability concerns, monetary policy responds procyclically to risk-premium shocks. We also find that the use of such a large panel of data improves inflation forecasting performance over smaller models and renders this model suitable for policy purposes.
 
Series: Working Paper No. 11/259
Subject(s): Central banks | External shocks | Hungary | Inflation targeting | Monetary policy | Monetary transmission mechanism | Risk premium

Author's Keyword(s): Monetary policy | Risk premium shocks | Transmission mechanism | Large Bayesian VAR.
 
English
Publication Date: November 01, 2011
Format: Paper
Stock No: WPIEA2011259 Pages: 49
Price:
US$18.00 (Academic Rate:
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