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Estimating Monetary Policy Effects When Interest Rates are Bounded at Zero

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Author Info
Shu Wu
Shigeru Iwata
Abstract

Using a nonlinear structural VAR approach, we estimate the effects of exogenous monetary policy shocks in the presence of a zero lower bound constraint on nominal interest rates and examine the impact of such a constraint on the effectiveness of counter-cyclical monetary policies based on the data from Japan. We find that when interest rates are at zero, the output effect of exogenous shocks to monetary policy is cut in half if the central bank continues to target the interest rate. The conditional impulse response functions allow us to isolate the effect of monetary policy shocks operating through the interest rate channel when other possible channels of monetary transmission are present

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Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 478.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:478

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Keywords: Zero lower bound; monetary transmission; nonlinear VAR.;

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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  20. Jeffrey C. Fuhrer & Brian F. Madigan, 1997. "Monetary Policy When Interest Rates Are Bounded At Zero," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 573-585, November. [Downloadable!] (restricted)
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