Identifying Conventional and Unconventional Monetary Policy Shocks: A Latent Threshold Approach

Takeshi Kimura and Jouchi Nakajima

No 13-E-7, Bank of Japan Working Paper Series from Bank of Japan

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: 2013-05-02
New Economics Papers: this item is included in nep-cba, nep-ecm, nep-ger, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Journal Article: Identifying conventional and unconventional monetary policy shocks: a latent threshold approach (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:boj:bojwps:13-e-7

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