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Identification of Monetary Policy Shocks in Japan Using Sign Restrictions within the TVP-VAR Framework

Michal Franta

No 11-E-13, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: This paper contributes to the discussion on the functioning of the monetary policy transmission mechanism in Japan during the past three decades. It extends the methodology of time-varying parameter vector autoregressions (TVP-VAR) by employing an identification scheme based on sign restrictions. This approach allows for an explicit account of the zero lower bound on the nominal interest rate. Results suggest differences in the transmission mechanism between the quantitative easing policy period and the periods when the call rate played the role of a monetary policy instrument. Monetary policy operating through call rate movements is found to influence output more than when it targets banks' balances held at the central bank. Monetary policy operating through quantitative easing is found to influence inflation, in sharp contrast to the previous literature.

Keywords: Structural vector autoregressive model; time-varying parameters; sign restrictions; unconventional monetary policy; zero lower bound (search for similar items in EconPapers)
JEL-codes: C11 C15 E52 (search for similar items in EconPapers)
Date: 2011-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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