Essays in Applied Macroeconomics
Creators: name: Fusari, Francesco
Publisher: name: University of Surrey
Year: 2024
Subjects: Structural Vector Autoregressions, Monetary Policy

description: This thesis consists of three essays in Applied Macroeconomics. Each essay is contained inone chapter and can be read as a standalone piece. Chapter 1 proposes a new strategy for the identification of monetary policy shocks in Structural Vector Autoregressions (SVARs). It combines traditional sign restrictions with external constraints on high-frequency monetary surprises and Federal Reserve internal forecasts. I use it to assess the transmission ofUS monetary policy over the period 1965-2007. First, I find that contractionary monetaryshocks unequivocally decrease output, sharpening the ambiguous implications of standardsign-restricted SVARs. Second, I show that the identified monetary shocks and monetarypolicy equations are consistent with a narrative reading of the times and Taylor-type rules.Finally, I implement an algorithm for robust Bayesian inference in set-identified SVARs,providing further evidence in support of the methodology I propose in this chapter.Chapter 2 studies the relationship between monetary policy decisions taken by the FederalOpen Market Committee (FOMC) and higher moments of expected economic outcomes.First, I employ quantile factor models to characterize the conditional distribution of centralbank economic projections and construct indicators of uncertainty and skewness. Second, Ifind that the skewness of expected output growth and inflation rate is a crucial predictor of thechanges in the intended federal funds rate deliberated by the FOMC. This empirical evidenceis found to be reconcilable with central bank’s optimal behavior under non-linear weightingof probability. My findings suggest that considering central moments only is not enough tofully capture the systematic component of monetary policy and lead therefore to importantimplications for the identification of monetary shocks. Specifically, I find that conditioningon higher moments allows to identify monetary shocks exhibiting lower predictability andthat generate theoretically consistent effects on the economy.In Chapter 3, we study SVAR models that impose internal and external restrictions to setidentifythe Forecast Error Variance Decomposition (FEVD). This object measures theimportance of shocks for macroeconomic fluctuations and is therefore of first-order interestin business cycle analysis. First, we characterize the endpoints of the FEVD as the extremeeigenvalues of a symmetric reduced-form matrix coming from quadratic programming. Second,we use the perturbation theory to prove that the endpoints of the FEVD are differentiablewith respect to the reduced-form parameters. Third, we rely on inference for eigenvaluesto construct confidence intervals that are uniformly consistent in level and have asymptoticBayesian interpretation. We also describe the conditions to derive uniformly consistent confidenceintervals for impulse responses. AMonte-Carlo exercise demonstrates the properties ofour approach in finite samples, while an empirical application based on credit supply shocksillustrates our toolkit. Finally, our machinery can be also used to quantify the sensitivity ofthe standard Bayesian inference to the choice of an unrevisable prior.