Macroeconomic effects of monetary policy in Japan: an analysis using interest rate futures surprises

We estimate the effects of monetary policy on the aggregate economy in Japan during the last three decades when the effective lower bound (ELB) on interest rates was occasionally binding. We use monetary policy surprises from the interest rate futures market as the external instrument to identify monetary policy shocks in the vector autoregressive model. We find that monetary policy has been effective in Japan during the last three decades, and the effect was more persistent in the ELB regime than in the non-ELB regime. In a simulation exercise, we further show that a New Keynesian model with forward guidance can replicate our empirical finding.