The Effects of Monetary Policy in Japan


This article interprets time series facts regarding the sources of business fluctuations in Japan and attempts to uncover possible characteristics of the effects of monetary policy over the last two decades. It argues that given the institutional features of the Bank of Japan's operating procedures, a simple recursive vector autoregressive (VAR) model that consists of interest rates, money, stock prices and output, all in first differences, may serve as a useful benchmark for Japan. The main finding is that monetary policy shocks in fact have a persistent effect on real output especially in the rise and fall of Japan's "bubble economy" in the late 1980s.

Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059