A Peek Inside the Black Box The Monetary Transmission Mechanism in Japan
31 Pages Posted: 15 Feb 2006
Date Written: October 1999
This paper uses vector autoregressions to examine the monetary transmission mechanism in Japan. The empirical results indicate that both monetary policy and banks` balance sheets are important sources of shocks, that banks play a crucial role in transmitting monetary shocks to economic activity, that corporations and households have not been able to substitute borrowing from other sources for a shortfall in bank borrowing, and that business investment is especially sensitive to monetary shocks. We conclude that policy measures to strengthen banks are probably a prerequisite for restoring the effectiveness of the monetary transmission mechanism.
Keywords: Monetary transmission mechanism bank behavior
JEL Classification: E50 E51
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