Marek Jarociński

Responses to monetary policy shocks in the east and the west of Europe: a comparison

This paper estimates responses to monetary shocks for several of the current members of the EMU (in the pre-EMU sample) and for the Central and East European (CEE) countries, along with the mean response in each of the groups. The problem of the short sample, especially acute in the case of the CEE, is mitigated by using a Bayesian estimation which combines information across countries. The estimated responses are similar across regions, but there is some evidence of more lagged and deeper price responses in the CEE economies. If this results from structural differences, premature entering the EMU would cause problems, but if from credibility issues, entering the EMU would be desirable. Also, with longer response lags, conducting a stabilizing monetary policy should be difficult in the CEE currently, and giving it up might not be a big loss after all.

Granger-Causal-Priority and Choice of Variables in Vector Autoregressions

We derive a closed-form expression for the posterior probability of Granger noncausality in a gaussian vector autoregression with a conjugate prior. We also express in closed form the posterior probability of Granger causal priority, a more general relation that accounts for indirect effects between variables and therefore is suitable in a multivariate context. One can use these results to answer the classic question, “Is variable z relevant for variable x?” and to choose variables for a vector autoregression.

A note on implementing the Durbin and Koopman simulation smoother

The correct implementation of the Durbin and Koopman simulation smoother is explained. A possible misunderstanding is pointed out and clarified for both the basic state space model and for its extension that allows time-varying intercepts (mean adjustments).