Analysis of the Monetary Policy Dynamics in Romania Using a Structural Vector Autoregressive Model

Analysis of the Monetary Policy Dynamics in Romania Using a Structural Vector Autoregressive Model

DOI: 10.4018/978-1-5225-9269-3.ch006

Abstract

This chapter aims to provide an elaborate empirical analysis of the monetary policy dynamics in Romania using a structural vector autoregressive model. This chapter contributes to literature based on an empirical framework regarding the implications of exchange rate channel within the monetary policy, and the impact of the monetary aggregates channels in order to explain the evolution of the prices level in Romania.
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Methodology And Data

The formalization of the VAR modelling is presented in multiple sources among which we distinguish Hamilton (1994) and Enders (1995). The following approach (Favero, 2001) has for unique object the presentation of the Choleski identification, adopted in this model.

We consider the following system with n variables:

978-1-5225-9269-3.ch006.m01
(1) where: A is a matrix (nxn) that describes the contemporaneous, structural relations between the variables from the system; 978-1-5225-9269-3.ch006.m02 is the vector (nx1) of the macroeconomic variables, C(L) is a matrix lag polynomial; 978-1-5225-9269-3.ch006.m03 is the vector of innovations, B is a matrix (nxn), which in the great majority of applications (as well as in the present one) is diagonal.

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