We introduce the financial market friction through the search and matching in the loan market into a dynamic stochastic general equilibrium (DSGE) model. We reveal that the second order approximation of social welfare includes the terms relating credit, such as credit market tightness, the...

Summers (1991) proposes that a central bank, in conducting monetary policy, should pursue a small but positive ex ante inflation rate even before nominal interest rates hit the zero bound. He insists that the central bank can thus reduce the social costs brought about by negative shocks to the...

In this paper, we set out the JEM (Japanese Economic Model), a large macroeconomic model of the Japanese Economy. Although the JEM is a theoretical model designed with a view to overcoming the Lucas (1976) critique of traditional large macroeconomic models, it can also be used for both...

The financial activity index (FAIX) introduced in this paper is a selection of financial indicators that borrow from prior literature on early bubble warnings and are particularly adept at explaining the bubble occurred in Japan starting in the 1980s. Our index comprises 10 financial indicators...

This paper introduces the Financial Macro-econometric Model (FMM) being developed by the Bank of Japan. The FMM is a medium-sized structural model comprising two sectors: a financial sector and a macroeconomic sector. It permits the quantitative analysis of various phenomena created by the...

This paper uses a financial macro-econometric model to compare and analyze the impact of macroprudential policy measures -- a credit growth restriction, loan-to-value and debt-to-income regulations, and a time-varying capital requirement -- on the economic dynamics through the financial cycle...

This paper analyzes the effects on the financial system and the real economy of errors in a reference rate, and the subsequent rapid corrections of the rate. In this analysis, we use the Financial Macro-econometric Model, which reflects an adverse feedback loop between the financial system and...

We identify a monetary policy rule that remains optimal even in the presence of the non-negativity constraint on nominal interest rates. This rule also compensates for any past shortfalls in monetary easing during the zero interest rate period.

This paper shows how purchasing power parity (PPP) can be used to construct a measure for inflation expectations and discusses the properties of this measure from both a theoretical and an empirical perspective. Under the PPP hypothesis, inflation expectations in one country are equal to...

This paper proposes a new estimation framework for identifying monetary policy shocks in both conventional and unconventional policy regimes using a structural VAR model. Exploiting a latent threshold modeling strategy that induces time-varying shrinkage of the parameters, we explore a recursive...