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Abstract

This paper contributes to the discussion on the functioning of the monetary policy transmission mechanism in Japan during the past three decades. It extends the methodology of time-varying parameter vector autoregressions (TVP-VAR) by employing an identification scheme based on sign restrictions. This approach allows for an explicit account of the zero lower bound on the nominal interest rate. Results suggest differences in the transmission mechanism between the quantitative easing policy period and the periods when the call rate played the role of a monetary policy instrument. Monetary policy operating through call rate movements is found to influence output more than when it targets banksf balances held at the central bank. Monetary policy operating through quantitative easing is found to influence inflation, in sharp contrast to the previous literature.

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Bibliographic Info

Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 11-E-13.

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Date of creation: Jun 2011
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Handle: RePEc:ime:imedps:11-e-13

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Related research

Keywords: Structural vector autoregressive model; time-varying parameters; sign restrictions; unconventional monetary policy; zero lower bound;

Find related papers by JEL classification:

• C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
• C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
• E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

This paper has been announced in the following NEP Reports:

• NEP-ALL-2011-07-02 (All new papers)
• NEP-CBA-2011-07-02 (Central Banking)
• NEP-MAC-2011-07-02 (Macroeconomics)
• NEP-MON-2011-07-02 (Monetary Economics)

References

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Cited by:

1. Michal Franta & Jan Libich & Petr Stehlik, 2012. "Tracking Monetary-Fiscal Interactions Across Time and Space," Working Papers 2012/06, Czech National Bank, Research Department.
   
   • Michal Franta & Jan Libich & Petr Stehlík, 2012. "Tracking Monetary-Fiscal Interactions across Time and Space," CAMA Working Papers 2012-40, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
2. Ugo Fasano-Filho & Qing Wang & Pelin Berkmen, 2012. "Bank of Japan's Quantitative and Credit Easing: Are They Now More Effective," IMF Working Papers 12/2, International Monetary Fund.

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