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Canadian monetary policy analysis using a structural VARMA model
Author(s) -
Raghavan Mala,
Athanasopoulos George,
Silvapulle Param
Publication year - 2016
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12200
Subject(s) - monetary policy , economics , construct (python library) , sample (material) , econometrics , vector autoregression , macroeconomics , component (thermodynamics) , scalar (mathematics) , computer science , mathematics , physics , programming language , thermodynamics , chemistry , geometry , chromatography
This paper builds a structural VARMA (SVARMA) model for investigating Canadian monetary policy. Using the scalar component methodology proposed by Athanasopoulos and Vahid (2008a), we first identify a VARMA model and then construct a SVARMA for Canadian monetary policy. Relative to the responses by a structural VAR, the responses generated by the SVARMA are consistent with those supported by various theoretical models and solve economic puzzles commonly found in the empirical literature on monetary policy. The superior out‐of‐sample forecasting performance of the reduced form VARMA compared to VAR alternatives further advocates the suitability of this framework for small open economies.