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The effectiveness of conventional and unconventional monetary policy: Evidence from a structural dynamic factor model for Japan

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  • Hanisch, Max

Abstract

I investigate the effectiveness of both conventional and unconventional Japanese monetary policy measures targeting either the short-term interest rate or the monetary base. Using a 1985–2014 data set covering 135 variables, the analysis is based on a structural dynamic factor model. An expansionary monetary policy shock, identified via theoretically plausible sign restrictions, is found to significantly increase real and nominal economic activity. With regard to the policy instrument, its effectiveness differs. A shock that decreases the short-term interest rate has a strong positive effect on output and a modest effect on prices. A monetary policy shock that raises the monetary base has a positive – but weak and rather transitory – effect on output, and a strong effect on goods and stock prices.

Suggested Citation

  • Hanisch, Max, 2017. "The effectiveness of conventional and unconventional monetary policy: Evidence from a structural dynamic factor model for Japan," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 110-134.
  • Handle: RePEc:eee:jimfin:v:70:y:2017:i:c:p:110-134
    DOI: 10.1016/j.jimonfin.2016.08.002
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    Cited by:

    1. repec:eee:ecofin:v:42:y:2017:i:c:p:70-88 is not listed on IDEAS
    2. Nakabayashi, Masaki, 2017. "Contained crisis and socialized risk," Research in International Business and Finance, Elsevier, vol. 40(C), pages 231-241.
    3. Max Hanisch, 2017. "US Monetary Policy and the Euro Area," Discussion Papers of DIW Berlin 1701, DIW Berlin, German Institute for Economic Research.
    4. Stephanos Papadamou & Nikolaos A. Kyriazis & Lydia Mermigka, 2017. "Japanese Mutual Funds before and after the Crisis Outburst: A Style- and Performance-Analysis," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 5(1), pages 1-20, March.
    5. Svatopluk Kapounek, 2017. "The Impact of Institutional Quality on Bank Lending Activity: Evidence from Bayesian Model Averaging," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(5), pages 372-395, October.

    More about this item

    Keywords

    Structural factor model; Sign restrictions; Monetary policy; Quantitative easing; Zero lower bound; Japan;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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