Identifying conventional and unconventional monetary policy shocks: a latent threshold approach

Takeshi Kimura and Jouchi Nakajima

The B.E. Journal of Macroeconomics, 2016, vol. 16, issue 1, 277-300

Abstract: This paper proposes a new estimation framework for identifying monetary policy shocks in both conventional and unconventional policy regimes using a structural VAR model. Exploiting a latent threshold modeling strategy that induces time-varying shrinkage of the parameters, we explore a recursive identification switching with a time-varying overidentification for the interest rate zero lower bound. We empirically analyze Japan’s monetary policy to illustrate the proposed approach for modeling regime-switching between conventional and unconventional monetary policy periods, and find that the proposed model is preferred over a nested standard time-varying parameter VAR model. The estimation results show that increasing bank reserves lowers long-term interest rates in the unconventional policy periods, and that the impulse responses of inflation and the output gap to a bank reserve shock appear to be positive but highly uncertain.

Keywords: identification; latent threshold models; monetary policy; time-varying parameter VAR; zero lower bound (search for similar items in EconPapers)
JEL-codes: C32 E52 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (33)

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Working Paper: Identifying Conventional and Unconventional Monetary Policy Shocks: A Latent Threshold Approach (2013)
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DOI: 10.1515/bejm-2015-0074

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