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The Effects of Japanese Monetary Policy Shocks on Exchange Rates: A Structural Vector Error Correction Model Approach

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  • Jang, Kyungho

    (U AL)

  • Ogaki, Masao

    (OH State U)

Abstract

This paper investigates the effects of shocks to Japanese monetary policy on exchange rates and other macroeconomic variables, using structural vector error correction model methods with long-run restrictions. Long-run restrictions are attractive because they are more directly related to economic models than typical recursive short-run restrictions that some variables are not affected contemporaneously by shocks to other variables. In contrast with our earlier study of U.S. monetary policy with long-run restrictions in which the empirical results were more consistent with the standard exchange rate model than those with short-run restrictions, our results for Japanese monetary policy with long-run restrictions are less consistent with the model than those with short-run restrictions.

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File URL: http://www.imes.boj.or.jp/research/papers/english/me21-1-1.pdf
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Bibliographic Info

Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

Volume (Year): 21 (2003)
Issue (Month): 1 (February)
Pages: 1-34

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Handle: RePEc:ime:imemes:v:21:y:2003:i:1:p:1-34

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  1. Blanchard, Olivier Jean, 1989. "A Traditional Interpretation of Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 79(5), pages 1146-64, December.
  2. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  3. 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.
  4. Shioji, Etsuro, 2000. "Identifying Monetary Policy Shocks in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 14(1), pages 22-42, March.
  5. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1987. "Stochastic Trends and Economic Fluctuations," NBER Working Papers 2229, National Bureau of Economic Research, Inc.
  6. Ogaki, Masao & Park, Joon Y., 1997. "A cointegration approach to estimating preference parameters," Journal of Econometrics, Elsevier, vol. 82(1), pages 107-134.
  7. Kenneth Kasa & Helen Popper, 1995. "Monetary policy in Japan: a structural VAR analysis," Pacific Basin Working Paper Series 95-12, Federal Reserve Bank of San Francisco.
  8. Eichenbaum, Martin & Evans, Charles L, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 975-1009, November.
  9. Fisher, L. & Fackler, P. & Orden, D., 1992. "Long-Run Identifying Restrictions for an Error-Correction Model of New Zealand Money, Prices and Output," Papers 92-27, New South Wales - School of Economics.
  10. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  12. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
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  14. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
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Cited by:
  1. Harada, Nobuyuki & Kageyama, Noriyuki, 2011. "Bankruptcy dynamics in Japan," Japan and the World Economy, Elsevier, vol. 23(2), pages 119-128, March.
  2. Shibamoto, Masahiko, 2008. "The estimation of monetary policy reaction function in a data-rich environment: The case of Japan," Japan and the World Economy, Elsevier, vol. 20(4), pages 497-520, December.

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