|Author Name||YOSHIDA Yushi (Shiga University) / Weiyang ZHAI (Shiga University / Research Assistant, RIETI)|
|Creation Date/NO.||September 2021 21-E-077|
|Research Project||Exchange Rates and International Currency|
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We investigate the dynamics of Japan's income and trade balance between 1996:Q1 and 2019:Q4 via a structural VAR model. The two most important constituents of the current account (trade balance and income balance) and seven other macroeconomic variables are entered in our VAR model. We implement a shadow rate for the measure of monetary policy under the unconventional monetary policy regime, including a zero lower bound interest rate. By using a standard SVAR model from the literature, we find that world shocks dominate and rule the dynamics of Japan's current account. Through additional short-run zero restrictions, we also find that exogenous exchange rate shocks affect the current account.