The Transmission of Monetary Policy Shocks: Evidence from Japan

Ritsu Yano, Yoshiyuki Nakazono and Kento Tango

No 57, TUPD Discussion Papers from Graduate School of Economics and Management, Tohoku University

Abstract: Following Miranda-Agrippino and Ricco (2021), we identify a monetary policy shock in Japan. We construct this shock to be orthogonal to the Bank of Japan’s macroeconomic forecasts, as well as a central bank’s information shock (Nakamura and Steinsson, 2018). Our findings indicate that a surprise policy tightening is contractionary, leading to a deterioration in output and decline in prices. There are no lagged effects of monetary policy on inflation. In response to a tightening shock, prices fall immediately. Furthermore, we demonstrate that a positive central bank information shock increases both output and prices. An unexpected positive outlook from the Bank of Japan raises stock prices and depreciates the Japanese yen. This evidence suggests that information effects play a crucial role in the Japanese economy, even under the effective lower bound.

Pages: 26 pages
Date: 2024-11-28
New Economics Papers: this item is included in nep-cba and nep-mon
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