Monetary Transmission Mechanism via Impulse Response Approach

Y. Morita and S. Miyagawa (Japan)


time series analysis, monetary transmission, impulse re sponse, unit root


Monetary transmission mechanism in Japan is investigated in two kinds of time intervals [1977,1989] and [1977,1998] associated with the burst of the bubble economy in the end of 1989. The VEC model is constructed for nonstationary I(1) variables (gdp, money supply, bank loans, price) combined with stationary interest rate r(t). The principal line of attack is to use impulse responses in the growth rate model and accumulate them to obtain impulse responses of level variables. This accumulation gives us convergence property of level variables to non-zero asymptotic states. We can calculate contributions to the asymptotic gdp from asymptotic money supply, bank loans and price in cointegrated and/or non-cointegrated systems. We show that the money channel has a stronger influence to gdp in [1977,1989] compared with credit one, while in [1977,1998] containing the period "after the bubble" the importance of credit channel increases dramatically.

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