DP1733 | Identifying Monetary Policy Shocks in Japan

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Publication Date

31/10/1997

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Abstract

It is sometimes argued that central banks influence the private economy in the short run through controlling a specific component of high powered money, not its total amount. Using a structural VAR approach, this paper evaluates this claim empirically, in the context of the Japanese economy. It estimates a model based on the standard view that the central bank controls the total amount of high powered money, and another model based on the alternative view that it controls only a specific component. It is shown that the former yields much more sensible estimates than the latter.