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Not all international monetary shocks are alike for the Japanese economy

Joaquin Vespignani () and Ronald Ratti

Economic Modelling, 2016, vol. 52, issue PB, 822-837

Abstract: This paper examines the influence of monetary aggregates shocks in the U.S., China and the Euro area on Japan. China's monetary expansion has significant effects on Japan's economy that are quite different from those of the U.S. and Euro area. In line with the implications of the Mundell–Fleming model when there are capital controls in place, Chinese monetary expansion is found to primarily affect Japan through trade. The income absorption effect of China's monetary expansion is substantial for Japan. China's monetary expansion results in significant increases in Japan's industrial production, exports and inflation, and decreases in the trade-weighted yen. After 24months, monetary shocks in China forecast 20% of the variation in Japan's real trade balance. In contrast, U.S. monetary expansion results in contraction in Japan's industrial production, exports and trade balance (expenditure-switching). Monetary expansion in the Euro area does not significantly affect Japan. Structural vector error correction models and a factor-augmented model are estimated to establish robustness of results.

Keywords: International monetary shocks; Japanese economy; Oil/commodity prices; SVEC models (search for similar items in EconPapers)
Date: 2016
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Working Paper: Not all international monetary shocks are alike for the Japanese economy (2014) Downloads
Working Paper: Not all international monetary shocks are alike for the Japanese economy (2013) Downloads
Working Paper: Not all international monetary shocks are alike for the Japanese economy (2013) Downloads
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