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A Peek Inside the Black Box: The Monetary Transmission Mechanism in Japan

  • Tamim Bayoumi
  • James Morsink

This paper uses vector autoregressions to examine the monetary transmission mechanism in Japan. The empirical results indicate that both monetary policy and banks’ balance sheets are important sources of shocks, that banks play a crucial role in transmitting monetary shocks to economic activity, that corporations and households have not been able to substitute borrowing from other sources for a shortfall in bank borrowing, and that business investment is especially sensitive to monetary shocks. We conclude that policy measures to strengthen banks are probably a prerequisite for restoring the effectiveness of the monetary transmission mechanism.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/137.

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Length: 36
Date of creation: 01 Oct 1999
Date of revision:
Handle: RePEc:imf:imfwpa:99/137
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