- Jul. 7, 2020
- Jul. 7, 2020
- Jul. 3, 2020
Home > Research and Studies > Bank of Japan Working Paper Series, Review Series, and Research Laboratory Series > Bank of Japan Working Paper Series 2013 > (Research Paper) Identifying Conventional and Unconventional Monetary Policy Shocks: A Latent Threshold Approach
: A Latent Threshold Approach
May 2, 2013
Click on Full Text [PDF 1,660KB]
This paper proposes a new estimation framework for identifying monetary policy shocks in both conventional and unconventional policy regimes using a structural VAR model. Exploiting a latent threshold modeling strategy that induces time-varying shrinkage of the parameters, we explore a recursive identification switching with a time-varying overidentification for the interest rate zero lower bound. We empirically analyze Japan's monetary policy to illustrate the proposed approach for modeling regime-switching between conventional and unconventional monetary policy periods, and find that the proposed model is preferred over a nested standard time-varying parameter VAR model. The estimation results show that increasing bank reserves lowers long-term interest rates in the unconventional policy periods, and that the impulse responses of inflation and the output gap to a bank reserve shock appear to be positive but highly uncertain.
Identification; Latent threshold models; Monetary policy; Time-varying parameter VAR; Zero lower bound
We are grateful for helpful discussions with and comments from Kosuke Aoki, Hiroshi Fujiki, Michael Funke, Takuji Kawamoto, and Mike West, as well as seminar participants at the Bank of Japan, University of Tokyo, and Hitotsubashi University. The views expressed herein are those of the authors alone and do not necessarily reflect those of the Bank of Japan.
Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank.
If you have any comment or question on the working paper series, please contact each author.
When making a copy or reproduction of the content for commercial purposes, please contact the Public Relations Department (firstname.lastname@example.org) at the Bank in advance to request permission. When making a copy or reproduction, the source, Bank of Japan Working Paper Series, should explicitly be credited.