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Identification of Monetary Policy Shocks in Japan Using Sign Restrictions within the TVP-VAR Framework

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  • Michal Franta

    (Czech National Bank, Economic Research Department (E-mail: michal.franta@cerge-ei.cz))

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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File URL: http://www.imes.boj.or.jp/research/papers/english/11-E-13.pdf
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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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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

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Cited by:

  1. Eddie Gerba & Klemens Hauzenberger, 2013. "Estimating US Fiscal and Monetary Interactions in a Time Varying VAR," Studies in Economics 1303, School of Economics, University of Kent.
  2. 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.
  3. Oxana Babecka Kucharcukova & Michal Franta & Dana Hajkova & Petr Kral & Ivana Kubicova & Anca Podpiera & Branislav Saxa, 2013. "What We Know About Monetary Policy Transmission in the Czech Republic: Collection of Empirical Results," Research and Policy Notes 2013/01, Czech National Bank, Research Department.
  4. Bijsterbosch, Martin & Falagiarda, Matteo, 2014. "Credit supply dynamics and economic activity in euro area countries: a time-varying parameter VAR analysis," Working Paper Series 1714, European Central Bank.
  5. Michaelis, Henrike & Watzka, Sebastian, 2014. "Are there Differences in the Effectiveness of Quantitative Easing in Japan over Time?," Discussion Papers in Economics 21087, University of Munich, Department of Economics.
  6. Henrike Michaelis & Sebastian Watzka, 2014. "Are there Differences in the Effectiveness of Quantitative Easing at the Zero-Lower-Bound in Japan over Time?," CESifo Working Paper Series 4901, CESifo Group Munich.
  7. 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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