The Effects of Monetary Policy Commitment: Evidence from Time- varying Parameter VAR Analysis

Jouchi Nakajima, Shigenori Shiratsuka () and Yuki Teranishi

No 10-E-06, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: In this paper, we explore the effects of the Bank of Japan's ( BOJ's) policy commitment under zero interest rates on the economy, by considering the transmission channel of altering private-sector expectations. To that end, we carry out a structural vector autoregression analysis on macroeconomic variables and private-sector expectations variables, using a time-varying parameters estimation technique with stochastic volatility. We show empirical evidence on two points. First, the BOJ's policy commitment regarding the future course of short-term interest rates, associated with only a small reduction in policy interest rates, succeeded in altering private-sector expectations. Second, the BOJ's policy commitment alone, nevertheless, was not sufficient to restore the previous trends in prices and output.

Keywords: Policy commitment; policy duration effect; expectations management; Bayesian estimation; time-varying parameter vector autoregression with stochastic volatility (search for similar items in EconPapers)
JEL-codes: C11 C13 E43 E44 E52 E58 (search for similar items in EconPapers)
Date: 2010-03
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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