IDEAS home Printed from https://ideas.repec.org/p/ecm/feam04/620.html
   My bibliography  Save this paper

Evaluating Monetary Policy When Nominal Interest Rates Are Almost Zero

Author

Listed:
  • Ippei Fujiwara

Abstract

The non-negativity constraint on nominal interest rates may have been a major factor behind a putative structural break in the effectiveness of monetary policy. To check for the existence of such a break without making prior assumptions about timing, and to enable comparison between pre- and post-break monetary policy, we employ an identified Markov switching VAR framework. Estimation results support the existence of a structural break around the time when the de-facto zero nominal interest rate policy was resumed and the effectiveness of monetary policy is seen to weaken since then although slightly positive effects from monetary easing still exist

Suggested Citation

  • Ippei Fujiwara, 2004. "Evaluating Monetary Policy When Nominal Interest Rates Are Almost Zero," Econometric Society 2004 Far Eastern Meetings 620, Econometric Society.
  • Handle: RePEc:ecm:feam04:620
    as

    Download full text from publisher

    File URL: http://repec.org/esFEAM04/up.23297.1080608054.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-16.
    2. Orphanides, Athanasios & Wieland, Volker, 2000. "Efficient Monetary Policy Design near Price Stability," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 327-365, December.
    3. Evan F. Koenig, 1990. "Real Money Balances and the Timing of Consumption: An Empirical Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 399-425.
    4. Watanabe, Toshiaki, 2003. "Measuring Business Cycle Turning Points in Japan with a Dynamic Markov Switching Factor Model," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(1), pages 35-68, February.
    5. Marvin J. Barth III & Valerie A. Ramey, 2002. "The Cost Channel of Monetary Transmission," NBER Chapters,in: NBER Macroeconomics Annual 2001, Volume 16, pages 199-256 National Bureau of Economic Research, Inc.
    6. Smets, Frank & Wouters, Raf, 2002. "An estimated stochastic dynamic general equilibrium model of the euro area," Working Paper Series 0171, European Central Bank.
    7. Cecchetti, Stephen G & Karras, Georgios, 1994. "Sources of Output Fluctuations during the Interwar Period: Further Evidence on the Causes of the Great Depression," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 80-102, February.
    8. Ehrmann, Michael & Ellison, Martin & Valla, Natacha, 2003. "Regime-dependent impulse response functions in a Markov-switching vector autoregression model," Economics Letters, Elsevier, vol. 78(3), pages 295-299, March.
    9. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
    10. Fujiki, Hiroshi & Shiratsuka, Shigenori, 2002. "Policy Duration Effect under the Zero Interest Rate Policy in 1999-2000: Evidence from Japan's Money Market Data," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(1), pages 1-31, January.
    11. Alan J. Auerbach & Maurice Obstfeld, 2005. "The Case for Open-Market Purchases in a Liquidity Trap," American Economic Review, American Economic Association, vol. 95(1), pages 110-137, March.
    12. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    13. Miyao, Ryuzo, 1996. "Does a Cointegrating M2 Demand Relation Really Exist in Japan?," Journal of the Japanese and International Economies, Elsevier, vol. 10(2), pages 169-180, June.
    14. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
    15. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    16. Peter N. Ireland, 2001. "The Real Balance Effect," Boston College Working Papers in Economics 491, Boston College Department of Economics.
    17. Ireland, Peter N., 2004. "A method for taking models to the data," Journal of Economic Dynamics and Control, Elsevier, vol. 28(6), pages 1205-1226, March.
    18. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
    19. Krolzig, H.-M. & Toro, J., 1999. "A New Approach to the Analysis of Shocks and the Cycle in a Model of Output and Employment," Economics Working Papers eco99/30, European University Institute.
    20. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    21. Lawrence J. Christiano, 1986. "Money and the U.S. economy in the 1980s: a break from the past?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-13.
    22. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
    23. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-144, January.
    24. Jean Boivin & Marc P. Giannoni, 2006. "Has Monetary Policy Become More Effective?," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 445-462, August.
    25. Ramana Ramaswamy & Christel Rendu, 2000. "Japan's Stagnant Nineties: A Vector Autoregression Retrospective," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 1-5.
    26. Bennett T. McCallum, 2000. "Theoretical analysis regarding a zero lower bound on nominal interest rates," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 870-935.
    27. John Geweke, 1999. "Computational Experiments and Reality," Computing in Economics and Finance 1999 401, Society for Computational Economics.
    28. Frank Smets & Raf Wouters, 2002. "Monetary policy in an estimated stochastic dynamic general equilibrium model of the Euro area," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    29. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, July.
    30. Garcia, Rene, 1998. "Asymptotic Null Distribution of the Likelihood Ratio Test in Markov Switching Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 763-788, August.
    31. Hanson, Michael S., 2004. "The "price puzzle" reconsidered," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1385-1413, October.
    32. Miyao, Ryuzo, 2000. "The Role of Monetary Policy in Japan: A Break in the 1990s?," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 366-384, December.
    33. Neftci, Salih N, 1984. "Are Economic Time Series Asymmetric over the Business Cycle?," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 307-328, April.
    34. Okina, Kunio & Shiratsuka, Shigenori, 2004. "Policy commitment and expectation formation: Japan's experience under zero interest rates," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 75-100, March.
    35. Miyao, Ryuzo, 2002. "The Effects of Monetary Policy in Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 376-392, May.
    36. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Markov Switching VAR; Monetary Policy;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecm:feam04:620. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/essssea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.