WU Economics Working Papers

Department of Economics Working Paper Series, 295, 2019

Exchange rate dynamics and monetary policy -- Evidence from a non-linear DSGE-VAR approach  

Huber, Florian; Rabitsch, Katrin

Abstract: In this paper, we reconsider the question how monetary policy influences exchange rate dynamics. To this end, a vector autoregressive (VAR) model is combined with a two-country dynamic stochastic general equilibrium (DSGE) model. Instead of focusing exclusively on how monetary policy shocks affect the level of exchange rates, we also analyze how they impact exchange rate volatility. Since exchange rate volatility is not observed, we estimate it alongside the remaining quantities in the model. Our findings can be summarized as follows. Contractionary monetary policy shocks lead to an appreciation of the home currency, with exchange rate responses in the short-run typically undershooting their long-run level of appreciation. They also lead to an increase in exchange rate volatility. Historical and forecast error variance decompositions indicate that monetary policy shocks explain an appreciable amount of exchange rate movements and the corresponding volatility.

The full paper is available under http://epub.wu.ac.at/7210/1/wp295.pdf

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Department of Economics Working Paper Series, 296, 2019

BVAR: Bayesian Vector Autoregressions with Hierarchical Prior Selection in R

Kuschnig, Nikolas; Vashold, Lukas

Abstract: Vector autoregression (VAR) models are widely used models for multivariate time series analysis, but often suffer from their dense parameterization. Bayesian methods are commonly employed as a remedy by imposing shrinkage on the model coefficients via informative priors, thereby reducing parameter uncertainty. The subjective choice of the informativeness of these priors is often criticized and can be alleviated via hierarchical modeling. This paper introduces BVAR, an R package dedicated to the estimation of Bayesian VAR models in a hierarchical fashion. It incorporates functionalities that permit addressing a wide range of research problems while retaining an easy-to-use and transparent interface. It features the most commonly used priors in the context of multivariate time series analysis as well as an extensive set of standard methods for analysis. Further functionalities include a framework for defining custom dummy-observation priors, the computation of impulse response functions, forecast error variance decompositions and forecasts.

The full paper is available under https://epub.wu.ac.at/7216/

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Department of Economics Working Paper Series, 297, 2019

Of clerks & cleaners: the heterogeneous impact of monetary policy on the US labor market

Zens, Gregor; Böck, Maximilian; Zörner, Thomas O.

Abstract: In this paper we estimate the effect of monetary policy on the US labor market using disaggregated data based on large scale micro surveys. By employing a Bayesian factor-augmented vector autoregression framework, we investigate the impact of an unanticipated interest rate change on the unemployment rate in 32 occupation groups. Our results on the aggregate level are in line with the literature and point towards a strong influence of monetary policy on economic activity, overall unemployment and investment. A closer look on the disaggregated level reveals heterogeneous impacts across occupation groups. This heterogeneity can partially be explained by the amount of routine tasks and the degree of offshorability of an particular occupation group. These results suggest that workers who are highly vulnerable to medium-term and long-term developments such as automatization and offshoring are also hit disproportionately hard by short-term economic fluctuations.

The full paper is available under https://epub.wu.ac.at/7317/1/WP297.pdf