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I am trying to estimate a forward guidance shock on the expected path of the future federal funds rates and industrial production of manufacturing and construction. I built my SVAR model using Smith and Becker's (2014) method, and now am trying to generate impulse response functions, but I don't quite understand how to intepret my findings. The first five plots are responses of the expected future federal funds rate at the third, fourth, fifth, sixth and seventh horizon to a forward guidance shock, and the last two plots are impulses responses of industrial production of construction and manufacturing to a forward guidance shock. It makes sense to me that the first five graphs are around zero because the interest rates are at the ZLB. I don't quite understand how the last two plots make sense, if the y axis is in the units of the variable of interest, why are the numbers so small? My industrial production data runs in the 90-100s range. How should I go about interpreting this or fixing the issue, if that is what's causing the weird y-axis. enter image description here

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  • $\begingroup$ Hi: Here is the paper that one would need read in order to understand the method. Unfortunately, you have to belong to the AEA to be able to obtain it. aeaweb.org/articles/pdf/doi/10.1257/0002828053828446 $\endgroup$ – mlofton Apr 14 at 2:14
  • $\begingroup$ Perhaps Economics Stack Exchange is a better place for this question? It seems some macroeconomic expertise is required to answer the questions about intepretation. $\endgroup$ – Richard Hardy Apr 14 at 10:57

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