Published in:Bank of England Working Paper ; No. 622
Extent:
1 Online-Ressource (34 p)
Language:
English
DOI:
10.2139/ssrn.2850442
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments October 07, 2016 erstellt
Description:
This paper proposes a method to interpret factors which are otherwise difficult to assign economic meaning to by utilizing a threshold factor-augmented vector autoregression (FAVAR) model. We observe the frequency of the factor loadings being induced to zero when they fall below the estimated threshold to infer the economic relevance that the factors carry. The results indicate that we can link the factors to particular economic activities, such as real activity, unemployment, without any prior specification on the data set. By exploiting the flexibility of FAVAR models in structural analysis, we examine impulse response functions of the factors and individual variables to a monetary policy shock. The results suggest that the proposed method provides a useful framework for the interpretation of factors and associated shock transmission