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Not all international monetary shocks are alike for the Japanese economy

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  • Ronald A. Ratti
  • Joaquin L. Vespignani

Abstract

It is found that over 1999:1-2012:12 China’s monetary expansion influences Japan through the effect of China’s growth on world commodity prices, increased demand for imports, and exchange rate policy. China’s monetary expansion is associated with significant increases in Japan’s industrial production, exports and inflation, and decreases in the trade-weighted yen. In contrast, U.S. monetary expansion results in contraction in Japan’s industrial production, exports and trade balance (expenditure-switching). Monetary expansion in the Euro area does not significantly affect Japan. Structural vector error correction models are estimated. Results are robust to various contemporaneous restrictions for the effect of international monetary variables, the interaction of foreign and domestic variables and to factor augmented VAR to identify monetary shocks.

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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2014-14.

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Length: 37 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:een:camaaa:2014-14

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Keywords: International Monetary shocks; Japanese economy; Oil/commodity prices; SVEC models;

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