Research Discussion Paper – RDP 2010-07 Monetary Policy and the Exchange Rate: Evaluation of VAR Models

Contents

• Introduction
• A Small Open Economy DSGE Model
• Estimating the Small Open Economy Model
• VAR Models with Simulated Data
• Estimated Sign-restricted VAR – Actual Data
• Conclusion
• Appendix A: Sign Restriction Algorithm
• Appendix B: Data Description and Sources
• Appendix C: Supplementary Figures
• References

We would like to thank Christopher Kent, Mariano Kulish and Adrian Pagan for discussions and comments. We are also grateful to Gert Peersman for sharing his code. Responsibility for any remaining errors rests with us. The views expressed in this paper are those of the authors and are not necessarily those of the Reserve Bank of Australia.