Structural Gaussian mixture vector autoregressive model with application to the asymmetric effects of monetary policy shocks

TL;DR

This paper introduces a novel structural Gaussian mixture VAR model that identifies asymmetric effects of monetary policy shocks, providing flexible constraints and an R package for analysis.

Contribution

It develops a new model combining Gaussian mixtures with VARs for asymmetric shock analysis, with testable constraints and practical implementation tools.

Findings

Strong asymmetries in US monetary policy shock effects

Sign and size of shocks influence economic responses

Model offers flexible identification and testing options

Abstract

A structural Gaussian mixture vector autoregressive model is introduced. The shocks are identified by combining simultaneous diagonalization of the reduced form error covariance matrices with constraints on the time-varying impact matrix. This leads to flexible identification conditions, and some of the constraints are also testable. The empirical application studies asymmetries in the effects of the U.S. monetary policy shock and finds strong asymmetries with respect to the sign and size of the shock and to the initial state of the economy. The accompanying CRAN distributed R package gmvarkit provides a comprehensive set of tools for numerical analysis.