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A Quest for Monetary Policy Shocks in Japan by High Frequency Identification

Author

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  • Fumitaka Nakamura

    (Deputy Director and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: fumitaka.nakamura@boj.or.jp))

  • Nao Sudo

    (Director and Senior Economist, Institute for Monetary and Economic Studies (currently, Financial System and Bank Examination Department), Bank of Japan (E-mail: nao.sudou@boj.or.jp))

  • Yu Sugisaki

    (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: yuu.sugisaki@boj.or.jp))

Abstract

The use of changes in short-term interest rates (STIRs) within a 30-minute window around monetary policy announcements has been increasingly adopted in empirical studies. However, variations of STIRs within such a narrow window may be too small under the effective lower bound (ELB). To address the issue, this paper constructs a measure of monetary policy shocks using STIR futures in Japan, where the policy interest rate has been close to the ELB for an exceptionally long period. We show that (i) variations within a 30-minute window are closely correlated with key financial variables while those outside the window are correlated less, suffering from noise, (ii) expansionary shocks with respect to unconventional measures have continued to lower the long-term yield, and (iii) the impulses of macroeconomic variables to the shocks agree with what conventional theory predicts overall.

Suggested Citation

  • Fumitaka Nakamura & Nao Sudo & Yu Sugisaki, 2021. "A Quest for Monetary Policy Shocks in Japan by High Frequency Identification," IMES Discussion Paper Series 21-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
  • Handle: RePEc:ime:imedps:21-e-02
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    References listed on IDEAS

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    Cited by:

    1. Fumitaka Nakamura & Nao Sudo & Yu Sugisaki, 2021. "Monetary Policy Shocks and the Employment of Young, Middle-Aged, and Old Workers," IMES Discussion Paper Series 21-E-06, Institute for Monetary and Economic Studies, Bank of Japan.
    2. HOSONO Kaoru & TAKIZAWA Miho & YAMANOUCHI Kenta, 2022. "Financial Constraints and Markups," Discussion papers 22012, Research Institute of Economy, Trade and Industry (RIETI).
    3. Hiroyuki Kubota & Mototsugu Shintani, 2021. "High-Frequency Identification of Monetary Policy Shocks in Japan (Revised version of CARF-F-502)(Forthcoming in the Japanese Economic Review)," CARF F-Series CARF-F-530, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.

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    More about this item

    Keywords

    Monetary policy shocks; high frequency identification; effective lower bound;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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