The Effect of Monetary Shocks on Disaggregated Prices in a Data Rich Environment: a Bayesian FAVAR Approach
Summer 2012, Volume 6 - Number 4 (34 صفحه - از 27 تا 60)
"2005, Boivin, Giannoni and Mihov 2009) that utilizes factor augmented VAR (FAVAR) approach to analyze the effect of monetary policy shocks and finds no evidence of a price puzzle. We use a factor augmented VAR framework to examine the impulse response function of 12 categories of CPI to an increase in monetary base growth rate in Iran. The rest of this paper is structured as follows: section two reviews the FAVAR literature as well as the studies done in the context of examining the effect of monetary policy shocks on disaggregated prices; section three sets out the methodological approach used and the next section describes the data set used for estimating the common factors; section five is about the BFAVAR estimation procedure and the factor extraction; in section six, the sources of fluctuations in disaggregated prices are examined; section seven presents the results of the study; section eight presents the concluding remarks and provides some policy implications. Although the articles mentioned above used VAR models to analyze the response of disaggregated prices, Haroon Mumtaz, Pawel Zabczyk and Colin Ellis (2009) use a factor-augmented vector auto regression technique to examine the role that macroeconomic and sector-specific factors play in UK price fluctuations at the aggregate and disaggregated levels. The results from this specification indicates that there is no significant difference in the impulse response functions of disaggregated prices in comparison to the first specification (as mentioned before, the model includes monetary base growth, GDP growth rate, inflation and exchange rate (non-official rate) as well as three factors)."
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