Sign-restricted VAR models improve accuracy of monetary policy impact predictions.
The article examines how different models can predict the effects of monetary policy on an economy. By using a specific type of model, researchers found that it can accurately estimate how things like inflation and exchange rates respond to changes in interest rates. However, the average predictions from this model may not always match the actual outcomes. This challenges the idea that the most likely scenario is the one in the middle of all possible outcomes. The study also shares results from applying this model to Australian economic data.