International Transmission of Japanese Monetary Shocks Under Low and Negative Interest Rates: A Global Favar Approach

Mark Spiegel and Andrew Tai

No 2017-8, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: We examine the implications of Japanese monetary shocks under recent very low and sometimes negative interest rates to the Japanese economy as well as three of its major trading partners: Korea, China and the United States. We follow the literature in using movements in 2-year Japanese government bond rates as proxies for changes in monetary conditions in the neighborhood of the zero lower bound. We examine the implications of shocks to the 2-year rate in a series of factor-augmented vector autoregressive?or FAVAR?models, in which both local and global conditions are proxied by latent factors generated from domestic economic indicators and weighted indicators of major trading partners, respectively. Our results suggest that shocks to 2-year Japanese rates do have substantive impacts on Japanese economic activity and inflation in conditions of low or even negative short-term rates. However, we find only modest global spillovers from Japanese monetary policy shocks, as their impact on the economic conditions of major Japanese trading partners is muted, particularly relative to the impact of innovations in 2-year U.S. Treasury yields over the same period.

JEL-codes: C30 E50 E52 E58 F37 F42 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2017-02-28
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: Preliminary and incomplete draft. 11.0. Please do not quote without the authors’ permission.
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DOI: 10.24148/wp2017-08

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