
Contents
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8.1 Introduction 8.1 Introduction
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8.2 Econometric Framework: FAVAR 8.2 Econometric Framework: FAVAR
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8.2.1 Description of FAVAR 8.2.1 Description of FAVAR
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8.2.2 Interpreting the FAVAR Structure in an International Context 8.2.2 Interpreting the FAVAR Structure in an International Context
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8.2.3 Estimation 8.2.3 Estimation
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8.2.4 Data 8.2.4 Data
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8.2.5 Preferred Specification of the Favar 8.2.5 Preferred Specification of the Favar
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8.3 International Factors and U.S. Economic Dynamics 8.3 International Factors and U.S. Economic Dynamics
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8.3.1 Comovements between U.S. and International Factors 8.3.1 Comovements between U.S. and International Factors
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8.3.2 Have U.S. and International Forces Become More Strongly Correlated? 8.3.2 Have U.S. and International Forces Become More Strongly Correlated?
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8.3.3 Testing the Relevance of Global Forces for U.S. Fluctuations 8.3.3 Testing the Relevance of Global Forces for U.S. Fluctuations
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Granger Causality Tests Granger Causality Tests
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Has the Influence of International Factors on U.S. Factors Increased over the Last Two Decades? Has the Influence of International Factors on U.S. Factors Increased over the Last Two Decades?
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8.4 Implications for the Monetary Transmission Mechanism 8.4 Implications for the Monetary Transmission Mechanism
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8.4.1 Empirical Strategy 8.4.1 Empirical Strategy
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8.4.2 Implementation 8.4.2 Implementation
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8.4.3 The Effects of Monetary Policy Shocks 8.4.3 The Effects of Monetary Policy Shocks
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8.4.4 Has the Role of Global Forces On the U.S. Monetary Transmission Changed? 8.4.4 Has the Role of Global Forces On the U.S. Monetary Transmission Changed?
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8.5 Conclusion 8.5 Conclusion
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Appendix Data Sets Appendix Data Sets
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1—U.S. Macroeconomic Series 1—U.S. Macroeconomic Series
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2—U.S. Personal Consumption Expenditures (Price Indexes and Nominal Expenditure) 2—U.S. Personal Consumption Expenditures (Price Indexes and Nominal Expenditure)
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3—U.S. Producer Price Indexes 3—U.S. Producer Price Indexes
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4—international Data 4—international Data
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References References
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Comment Comment
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Domestic and International Factors Domestic and International Factors
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Does Globalization Matter? the Econometric Strategy of the Chapter Does Globalization Matter? the Econometric Strategy of the Chapter
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Step 1: Extract the Factors Step 1: Extract the Factors
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Step 2: VAR on the Factors Step 2: VAR on the Factors
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Example 1: Autarky and Globalization Example 1: Autarky and Globalization
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Example 2: Sectoral Output Example 2: Sectoral Output
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Reference Reference
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Rejoinder Rejoinder
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Discussion's Examples, Stochastic Singularity, and Vars Discussion's Examples, Stochastic Singularity, and Vars
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Can We Estimate the VAR Coefficients? Can We Estimate the VAR Coefficients?
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Do We Need to Identify All Shocks? Do We Need to Identify All Shocks?
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Economic Interpretation Economic Interpretation
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8 Global Forces and Monetary Policy Effectiveness
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Published:March 2010
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Abstract
This chapter develops a Factor-Augmented VAR to describe the role played by international factors in the U.S. economic fluctuations and in the transmission mechanism of U.S. monetary policy. A small number of domestic and foreign latent factors that is common to a large set of the U.S. and non-U.S. variables are identified and estimated. The chapter subsequently models those factors by means of a standard VAR. The analysis uncovers a small role for international factors in accounting for fluctuations in the U.S. variables. It has been found that the role appears to be changed over time for some variables, but not always in the upward direction that popular accounts of the impact of the process of globalization on domestic economic performance might suggest.
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