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Canadian Monetary Policy Analysis using a Structural VARMA Model

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Raghavan, M and Athanasopoulos, G and Silvapulle, P (2014) Canadian Monetary Policy Analysis using a Structural VARMA Model. Discussion Paper. University of Tasmania. (Unpublished)

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Abstract

This paper builds a structural VARMA (SVARMA) model for investigating Canadian monetary policy. Using the scalar component model (SCM) methodology proposed by Athanasopoulos and Vahid (2008a), we rst identify a VARMA model and then construct a SVARMA for Canadian monetary policy. We include a SVAR model in our study for the purpose of comparison and we generate impulse responses along with 68% confidence bands for both models. Relative to the SVAR, the impulse responses generated by the SVARMA appear to be consistent with those predicted by various economic theoretical models and solve the economic puzzles found commonly in the empirical literature on monetary policy. The successful construction and implementation of the SVARMA model for Canadian monetary policy analysis,
along with its promising impulse responses and superior out-of-sample forecasting performance of its reduced form compared to the VAR alternatives, indicates the suitability of this framework for small open economies.

Item Type: Report (Discussion Paper)
Keywords: VARMA; Identication; Impulse responses; Open economy; Transmission mechanism; repec
Publisher: University of Tasmania
Additional Information:

Copyright 2014 The Author

Date Deposited: 27 May 2014 00:16
Last Modified: 18 Nov 2014 05:00
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