Central bank information effects in Japan: the role of uncertainty channel

Abstract

This study identifies central bank information shocks and pure monetary policy shocks for Japan by combining high-frequency identification with sign restrictions. The empirical findings provide robust evidence of the central bank information effect in Japan. Specifically, the central bank’s optimistic outlook, conveyed through contractionary monetary actions, reduces economic uncertainty and leads to increases in stock prices and output. Additionally, changes in uncertainty play a significant role in the transmission of the central bank’s information effect. The overall impact of monetary policy and information shocks, as identified through our method, is found to be larger than that identified using conventional techniques such as Cholesky decomposition.