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IMF Staff Papers Logo last updated: December 2001
Volume 48, Number 1
 
A Peek Inside the Black Box: The Monetary Transmission Mechanism in Japan
By James Morsink and Tamim Bayoumi

Full Text of this Article (PDF 1 MB)

Abstract: 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 to restoring the effectiveness of the monetary transmission mechanism. [JEL E50, E51]

2001 International Monetary Fund