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Monetary Policy in Japan, Germany and the United States: Does One Size Fit All?

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  • Menzie D. Chinn
  • Michael P. Dooley

Abstract

We study the post-war evidence for Japan to see if the same specification for both the economy and the monetary policy rule is useful for understanding Japan's economy and monetary policy. A recurrent theme in the literature on Japanese monetary policy is that there are significant differences in both the policy procedures and objectives as compared to other industrial countries. In this paper we propose an out of sample' test of a set of restrictions on a vector autoregression employed by Clarida and Gertler (1997) in their analysis of the Bundesbank's behavior. Our interpretation of the evidence is that, with minor adjustments, the same specification provides a useful framework for understanding monetary policy in Japan. Perhaps the most interesting finding is that the Bank of Japan appears to react to inflation over longer forecast horizons as compared to other central banks.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6092.

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Date of creation: Jul 1997
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Publication status: published as Japanese Economic Policy Reconsidered, Freedman, Craig, ed.: Edward Elgar, 1998, pp. 179-217.
Handle: RePEc:nbr:nberwo:6092

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  1. Bennett T. McCallum, 1993. "Specification and Analysis of a Monetary Policy Rule for Japan," NBER Working Papers 4449, National Bureau of Economic Research, Inc.
  2. Richard Clarida & Mark Gertler, 1996. "How the Bundesbank Conducts Monetary Policy," NBER Working Papers 5581, National Bureau of Economic Research, Inc.
  3. Gali, Jordi, 1992. "How Well Does the IS-LM Model Fit Postwar U.S. Data," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(2), pages 709-38, May.
  4. Menzie Chinn & Michael Dooley, 1995. "Asia-Pacific Capital Markets: Measurement of Integration and the Implications for Economic Activity," NBER Working Papers 5280, National Bureau of Economic Research, Inc.
  5. Pierce, James L, 1984. "Did Financial Innovation Hurt the Great Monetarist Experiment?," American Economic Review, American Economic Association, American Economic Association, vol. 74(2), pages 392-96, May.
  6. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 39(1), pages 195-214, December.
  7. Bernanke, Ben S. & Mihov, Ilian, 1995. "Measuring Monetary Policy," Economics Series, Institute for Advanced Studies 10, Institute for Advanced Studies.
  8. Dominguez, K.M.E., 1997. "Monetary Interdependence and Coordination," Working Papers, Research Seminar in International Economics, University of Michigan 408, Research Seminar in International Economics, University of Michigan.
  9. Reuven Glick & Michael Hutchison, 1992. "Monetary policy, intervention, and exchange rates in Japan," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Sep.
  10. Kenneth Kasa & Helen Popper, 1995. "Monetary policy in Japan: a structural VAR analysis," Pacific Basin Working Paper Series, Federal Reserve Bank of San Francisco 95-12, Federal Reserve Bank of San Francisco.
  11. Carl E. Walsh, 1993. "What caused the 1990-1991 recession?," Economic Review, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, pages 33-48.
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Cited by:
  1. Tachibana, Minoru, 2006. "Did the Bank of Japan have a target zone for the inflation rate?," Economics Letters, Elsevier, Elsevier, vol. 92(1), pages 131-136, July.
  2. V. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 1998. "Institutional Change, Inflation Targeting and the Stability of Interest Rate Reaction Functions," Working Papers, Business School - Economics, University of Glasgow 9815, Business School - Economics, University of Glasgow, revised Aug 1998.
  3. Andrew Levin & Volker Wieland & John C. Williams, 2001. "The performance of forecast-based monetary policy rules under model uncertainty," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2001-39, Board of Governors of the Federal Reserve System (U.S.).
  4. Kevin X.D. Huang & Qinglai Meng, 2007. "Distance to Frontier and the Big Swings of the Unemployment Rate: What Room is Left for Monetary Policy?," Kiel Working Papers 1348, Kiel Institute for the World Economy.
  5. Stéphanie Guichard, 1998. "La politique monétaire et la crise japonaise," Working Papers, CEPII research center 1998-06, CEPII research center.
  6. Kevin X.D. Huang & Qinglai Meng, 2007. "Is Forward-Looking Inflation Targeting Destabilizing? The Role of Policy's Response to Current Output under Endogenous Investment," Vanderbilt University Department of Economics Working Papers, Vanderbilt University Department of Economics 0704, Vanderbilt University Department of Economics.
  7. Mingwei Yuan & Christian Zimmermann, 2000. "Financial Intermediation with Heterogeneous Projects: An Application to the Japanese Credit Crunch," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 115, CREFE, Université du Québec à Montréal.
  8. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 2000. "Does Institutional Change Really Matter? Inflation Targets, Central Bank Reform and Interest Rate Policy in the OECD Countries," CESifo Working Paper Series 278, CESifo Group Munich.

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