Title: Evolving macroeconomic dynamics: A time-varying structural approach
Authors: Michael Ellington - University of Liverpool (United Kingdom) [presenting]
Costas Milas - University of Liverpool (United Kingdom)
Abstract: A comprehensive reduced--form and structural analysis of evolving macroeconomic dynamics is provided using theoretically founded Divisia money aggregates and a time-series spanning the Great Recession. We fit a Bayesian time-varying parameter VAR model with stochastic volatility to US and UK data from 1979 to 2015. Models using Divisia money growth rates pseudo-forecast GDP growth and inflation with a higher precision than simple-sum aggregates up to a 2-year horizon. Structural variance decompositions reveal that monetary policy shocks during the Great Recession contribute the lion's share of variation in real GDP growth and inflation volatility.