Identification of Structural Shocks under the Zero Lower Bound on Nominal Interest Rates
Kosuke Aoki and
Yoichi Ueno
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Kosuke Aoki: University of Tokyo
Yoichi Ueno: Bank of Japan
No 12-E-8, Bank of Japan Working Paper Series from Bank of Japan
Abstract:
We propose a simple and tractable method to estimate linear DSGE models with the zero lower bound on nominal interest rates. Our method makes use of forward rate curves in order to take into account the effects of the zero lower bound on equilibrium endogenous variables without relying on nonlinear techniques for solving rational expectation equilibrium. Applying the method to Japanese data, we find that the natural interest rate might not have declined to negative values in the late 90s and 2000s. Counterfactual simulations show that the Bank of Japan's zero interest rate policy and quantitative easing policy in those periods had expansionary effects by bull flattening the yield curves.
Date: 2012-11-02
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