Paper takes novel approach to identifying monetary policy shocks


A working paper published by the German Bundesbank combines two methods to identify monetary policy shocks. In The effects of US monetary policy shocks: applying external instrument identification to a dynamic factor model, Mark Kerssenfischer uses a dynamic factor model (DFM). He combines this with observed changes to external financial instruments to establish that monetary policy changes were not expected by markets. Much of the literature on monetary shocks, the author notes, uses vecto