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Output Composition of the Monetary Policy Transmission Mechanism in Japan

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Author Info
Ippei Fujiwara (Bank of Japan)

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Abstract

In this paper, we investigate the output composition of the monetary policy transmission mechanism in Japan. The predominant channel through which monetary policy affects output in Japan is usually thought to be the investment channel, namely the process whereby a change in the interest rate alters the cost of capital and therefore investment. In the United States, however, the consumption channel, which works through intertemporal substitution, is commonly considered the more significant of the two. The aim of this paper is twofold: 1) based on analysis using VAR models to understand which of the two channels, the consumption channel or the investment channel, plays the more important role in the transmission of the Japanese monetary policy; and 2) to contribute to the research on what Angeloni, Kashyap, Mojon and Terlizzese (2003) term the "Output Composition Puzzle," referring to the fact that whereas in the United States the predominant driver of output changes is the consumption channel, in the Euro area it is the investment channel. Results obtained from the Japanese models imply that the investment channel is more important.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Topics in Macroeconomics.

Volume (Year): 4 (2004)
Issue (Month): 1 ()
Pages: 1178-1178
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Handle: RePEc:bep:mactop:v:4:y:2004:i:1:p:1178-1178

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Related research
Keywords: VAR Monetary Policy Transmission Output Composition Puzzle

Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data

References listed on IDEAS
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  1. Ignazio Angeloni & Anil K. Kashyap & Benoit Mojon & Daniele Terlizzese, 2003. "The Output Composition Puzzle: A Difference in the Monetary Transmission Mechanism in the Euro Area and U.S," NBER Working Papers 9985, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
    Other versions:
  3. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January. [Downloadable!] (restricted)
  4. Christopher J. Erceg & Andrew T. Levin, 2002. "Optimal monetary policy with durable goods and non-durable goods," Working Paper Series 179, European Central Bank. [Downloadable!]
  5. Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-16. [Downloadable!]
  6. Ignazio Angeloni & Anil K. Kashyap & Benoît Mojon & Daniele Terlizzese, 2003. "The output composition puzzle - a difference in the monetary transmission mechanism in the euro area and the US," Working Paper Series 268, European Central Bank. [Downloadable!]
  7. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 2001. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," NBER Working Papers 8403, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June. [Downloadable!] (restricted)
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  9. Gordon, David B & Leeper, Eric M, 1994. "The Dynamic Impacts of Monetary Policy: An Exercise in Tentative Identification," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1228-47, December. [Downloadable!] (restricted)
    Other versions:
  10. Kasa, Ken & Popper, Helen, 1997. "Monetary Policy in Japan: A Structural VAR Analysis," Journal of the Japanese and International Economies, Elsevier, vol. 11(3), pages 275-295, September. [Downloadable!] (restricted)
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  11. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January. [Downloadable!] (restricted)
  12. Shioji, Etsuro, 2000. "Identifying Monetary Policy Shocks in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 14(1), pages 22-42, March. [Downloadable!] (restricted)
  13. Ben S. Bernanke, 1986. "Alternative Explanations of the Money-Income Correlation," NBER Working Papers 1842, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1996-2), pages 1-78. [Downloadable!]
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