TY  - JOUR
AU  - Bernanke,Ben S.
AU  - Boivin,Jean
AU  - Eliasz,Piotr
TI  - Measuring the Effects of Monetary Policy: A Factor-Augmented Vector Autoregressive (FAVAR) Approach
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10220
PY  - 2004
Y2  - January 2004
UR  - http://www.nber.org/papers/w10220
L1  - http://www.nber.org/papers/w10220.pdf
N1  - Author contact info:
Ben S. Bernanke
E-Mail: Rita.C.Proctor@frb.gov

Jean Boivin
Bank of Canada
234 Wellington Street
Ottawa
Ontario K1A 0G9
Canada
Tel: 613-782-8278
E-Mail: jboivin@bankofcanada.ca

Piotr Eliasz
E-Mail: peliasz@princeton.edu
AB  - Structural vector autoregressions (VARs) are widely used to trace out the effect of monetary policy innovations on the economy. However, the sparse information sets typically used in these empirical models lead to at least two potential problems with the results. First, to the extent that central banks and the private sector have information not reflected in the VAR, the measurement of policy innovations is likely to be contaminated. A second problem is that impulse responses can be observed only for the included variables, which generally constitute only a small subset of the variables that the researcher and policymaker care about. In this paper we investigate one potential solution to this limited information problem, which combines the standard structural VAR analysis with recent developments in factor analysis for large data sets. We find that the information that our factor-augmented VAR (FAVAR) methodology exploits is indeed important to properly identify the monetary transmission mechanism. Overall, our results provide a comprehensive and coherent picture of the effect of monetary policy on the economy.
ER  -