Yoshino, Naoyuki Yoshino and Hesary, Farhad Taghizadeh and Miyamoto, Hiroaki Miyamoto (2018): The effectiveness of Japan's Negative Interest rate policy.
Preview |
PDF
MPRA_paper_88084.pdf Download (790kB) | Preview |
Abstract
This paper investigates the effect of zero and negative interest rate policy of Japan on the inflation rate and the role of exchange rate in conducting the zero and negative interest rate policy. The disappointing economic performance thus seems primarily due to a series of adverse economic shocks rather than an extraordinary policy error. The empirical analysis is based on, primarily, a stylized VAR model of the Japanese economy with the innovation that the interest rate policy, and the exchange rate—two important parameters for assessing the stance of monetary policy—are allowed to vary over time. Secondly, the estimated VAR model investigates whether alternative interest-rate policy approaches proposed in the literature could have improved macroeconomic performance. Though, Granger causality method has been used in the earlier literature to measure the causation of interest rate on inflation rate and it also used to see the block and instantaneous causality between the systems of variables. Next, using an estimated structural model, I identified a number of adverse shocks occurring after the 1990s. It thus follows that int. rate policy was not solely responsible for the stimulation neither in inflation growth performance nor in increasing the output growth. Aiming for a low inflation level and responding to the economy according to a conventional policy rule provided insufficient insurance against the contractionary shocks that occurred over the 1990s.
Item Type: | MPRA Paper |
---|---|
Original Title: | The effectiveness of Japan's Negative Interest rate policy |
English Title: | The effectiveness of Japan's Negative Interest rate policy |
Language: | English |
Keywords: | VAR, Generalized and Orthogonalized impulse response, Granger causality, Unit root test |
Subjects: | E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E60 - General F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F45 - Macroeconomic Issues of Monetary Unions |
Item ID: | 88084 |
Depositing User: | Mr. Pankaj Nishad |
Date Deposited: | 21 Sep 2018 13:16 |
Last Modified: | 26 Sep 2019 08:48 |
References: | Smitka, M., (2004), “Japan’s Macroeconomic Dilemmas: The Implications of Demographics for Growth and Stability”, Washington and Lee University Lexington. Yoshino, N., Hesary., and Miyamoto, Hiraoki., (2017), “The Effectiveness of Japan’s Negative Interest Rate Policy”, ADBI Working Paper Series, No. 652. Okina, K., and Shiratsuka, S., (2003), “Policy commitment and expectation formation: Japan’s experience under zero interest rates”, Institute for monetary and economic study, Vol-15, pp. 75-100. Jurkšas, L., (2017), “An Impact Assessment of Negative Interest Rates of Central Banks”, EKONOMIKA, Vol-96(1). Angrick, S., and Nemoto, N., (2017), “Central Banking below Zero: The Implementation of Negative Interest Rates in Europe and Japan”, ADBI Working Paper series, No. 740. Bernanke, Ben., (2017), “Some Reflections on Japanese Monetary Policy”, Brookings Institution and the Hutchins Center on Fiscal and Monetary Policy. Berkmen, S. P., (2012), “Bank of Japan’s Quantitative and Credit Easing: Are They Now More Effective?”, IMF Working Paper, WP/12/2. Baumeister, C., and Benati, L., (2011), “Unconventional Monetary Policy and the Great Recession,” ECB Working Paper Series, No. 1258. Bernanke, B. S., and Blinder, A. S., (1992), “The Federal Funds Rate and the Channels of Monetary Transmission”, American Economic Review, Vol-82, pp. 901–921. Christiano, L. J., et.al., (2005), “Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy”, Journal of Political Economy, Vol-113, pp. 1-45. Chung, H., et.al., (2011), “Have we Underestimated the Likelihood and Severity of Zero Lower Bound Events?” Federal Reserve Bank of San Francisco Working Paper Series, Vol-113, pp. 1–45. Franta, M., (2011), “Identification of Monetary Policy Shocks in Japan Using Sign Restrictions within the TVP-VAR Framework”, The Bank of Japan-Institute for Monetary and Economic Studies Discussion Paper Series E-113. Liu, P., Mumtaz, H., 2012, “Changing Macroeconomic Dynamics at the Zero Lower Bound”, forthcoming Bank of England Working Paper. Nakajima, J., (2011), “Monetary Policy Transmission under Zero Interest Rates: An Extended Time-Varying Parameter Vector Autoregression Approach”, The Bank of Japan- Institute for Monetary and Economic Studies Discussion Paper-No. 2011–E-8. Peersman, G., and Smets, F., (2001), “The Monetary Transmission Mechanism in the Euro Area: More Evidence from VAR Analysis,” European Central Bank Working Paper No. 91. |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/88084 |
Available Versions of this Item
- The effectiveness of Japan's Negative Interest rate policy. (deposited 21 Sep 2018 13:16) [Currently Displayed]