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Unconventional Monetary Policy and a Financial Intermediary: Were they Relevant to Fluctuations in the Japanese Economy?

Unconventional Monetary Policy and a Financial Intermediary: Were they Relevant to Fluctuations... In this paper, we study whether the implementation of unconventional monetary policy (UMP) in Japan is relevant to its economy fluctuations. We conducted a Bayesian estimation of a DSGE model with an endogenous financial intermediary, and the central bank in the model is allowed to conduct a credit policy. Our findings can be summarized in the following three points: first, we find that the estimated posterior distribution of model parameters and the impulse response provide a plausible interpretation of the data. Second, by shock decomposition, we find that the credit supply shock of the bank sector played a crucial role in the GDP and investment fluctuations in the sample period. Third, the estimated risk spread reveals a high degree of correlation to the actual credit spread in Japan. Our estimation results suggest that UMP in Japan is effective in the sense of narrowing credit spreads, which leads to subsequent increase in investment and, in turn, positively affects the economy. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of International Commerce, Economics and Policy World Scientific Publishing Company

Unconventional Monetary Policy and a Financial Intermediary: Were they Relevant to Fluctuations in the Japanese Economy?

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References (18)

Publisher
World Scientific Publishing Company
ISSN
1793-9933
eISSN
1793-9941
DOI
10.1142/S1793993320500118
Publisher site
See Article on Publisher Site

Abstract

In this paper, we study whether the implementation of unconventional monetary policy (UMP) in Japan is relevant to its economy fluctuations. We conducted a Bayesian estimation of a DSGE model with an endogenous financial intermediary, and the central bank in the model is allowed to conduct a credit policy. Our findings can be summarized in the following three points: first, we find that the estimated posterior distribution of model parameters and the impulse response provide a plausible interpretation of the data. Second, by shock decomposition, we find that the credit supply shock of the bank sector played a crucial role in the GDP and investment fluctuations in the sample period. Third, the estimated risk spread reveals a high degree of correlation to the actual credit spread in Japan. Our estimation results suggest that UMP in Japan is effective in the sense of narrowing credit spreads, which leads to subsequent increase in investment and, in turn, positively affects the economy.

Journal

Journal of International Commerce, Economics and PolicyWorld Scientific Publishing Company

Published: Oct 22, 2020

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