Estimating Monetary Policy Effects When Interest Rates are Bounded at Zero

Shu Wu and Shigeru Iwata

No 478, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: Using a nonlinear structural VAR approach, we estimate the effects of exogenous monetary policy shocks in the presence of a zero lower bound constraint on nominal interest rates and examine the impact of such a constraint on the effectiveness of counter-cyclical monetary policies based on the data from Japan. We find that when interest rates are at zero, the output effect of exogenous shocks to monetary policy is cut in half if the central bank continues to target the interest rate. The conditional impulse response functions allow us to isolate the effect of monetary policy shocks operating through the interest rate channel when other possible channels of monetary transmission are present

Keywords: Zero lower bound; monetary transmission; nonlinear VAR. (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:feam04:478

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