A Peek Inside the Black Box: The Monetary Transmission Mechanism in Japan

Author/Editor:

Tamim Bayoumi ; James Morsink

Publication Date:

October 1, 1999

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 1999/137

Subject:

English

Publication Date:

October 1, 1999

ISBN/ISSN:

9781451855890/1018-5941

Stock No:

WPIEA1371999

Pages:

36

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