VAR Models in Monetary Policy-Financial Market Interconnections

Business School, Bristol University, Bristol, United Kingdom

^* Corresponding author: Zetaoyang_05@outlook.com

Abstract

The influence of monetary policy on the financial market and the mechanisms through which it is transmitted have long been a prominent subject of scholarly inquiry, given its role as the primary instrument for macroeconomic control. In recent years, scholars at home and abroad have widely used VAR models to analyze how monetary policy shocks affect financial markets through various channels. In order to fully understand the research status in this field, this paper briefly introduces the research background and significance in the introduction, and gives the structure of the full text. Then, in the literature review, the research methods, model types, variable settings and policy transmission paths of VAR models at home and abroad were systematically reviewed, and the comparison of the role of quantitative and price-based policy tools was emphatically introduced. The research methods section discusses the common recognition strategies and estimation techniques of VAR models. Within the results section, the key findings identified in prior literature are summarized, specifically addressing the characteristics associated with the effects of monetary policy on both macroeconomic and financial variables.