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Output Composition of Monetary Policy Transmission Mechanism in Japan

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  • Ippei Fujiwara

    ()
    (Research and Statistics Department, Bank of Japan, and Osaka University)

Abstract

In this paper, I investigate the output composition of monetary policy transmission mechanism in Japan. It is usually thought that the investment channel, namely the process that a change in interest rate alters the cost of capital and therefore investment, is more predominant in Japan. Yet, in the United States, it is commonly argued that the consumption channel through intertemporal substitution is more prevalent than the investment channel. The aim of this paper is twofold; 1) to understand which of the two channels; the consumption channel and the investment channel, is more signi cantly predominant in the monetary transmission mechanism of Japan based on the analysis with VAR and DSGE models, and 2) to contribute the research concerning the "Output Composition Puzzle" advocated by Angeloni, Kashyap, Mojon and Terlizzese (2002) for the fact that the consumption channel is more prevalent in the United States but in Euro area investment channel is the predominant driver of output changes. The results obtained from the Japanese models are consistent with our intuitive conclusion that the investment channel is more important.

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Bibliographic Info

Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 03-07.

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Length: 38 pages
Date of creation: Apr 2003
Date of revision:
Handle: RePEc:osk:wpaper:03-07

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Web page: http://www.econ.osaka-u.ac.jp/
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Keywords: VAR; DSGE; Monetary Policy Transmission; Output Composition Puzzle;

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References

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  2. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
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  4. Takeshi Kimura & Hiroshi Kobayashi & Jun Muranaga & Hiroshi Ugai, 2003. "The effect of the increase in the monetary base of Japan's economy at zero interest rates: an empirical analysis," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 276-312 Bank for International Settlements.
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  6. Ippei Fujiwara, 2003. "Has the effect of monetary policy changedduring 1990s?: An Application of Identified Markov Switching Vector Autoregression to the Impulse Response Analysis When the Nominal Interest Rate is Almost Ze," Discussion Papers in Economics and Business 03-08, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
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Cited by:
  1. Mojon, BenoƮt & Angeloni, Ignazio & Terlizzese, Daniele & Kashyap, Anil K., 2003. "The output composition puzzle: a difference in the monetary transmission mechanism in the euro area and U.S," Working Paper Series 0268, European Central Bank.

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