Money Demand Sensitivity to Interest Rates: The Case of Japans Zero-Interest Rate Policy

Abstract

The goal of this paper is to provide new evidence on how the zero-interest rate policy implemented by the Bank of Japan has affected the sensitivity of money demand with respect to the opportunity cost of holding money. To the empirical ends of the analysis, the study makes use of the univariate conditional autoregressive value-at-risk (CAViaR) estimator to obtain robust quantile measures. The empirical findings document that the sensitivity of money demand with respect to the opportunity cost of holding money has significantly increased after the 1994 period. The results remain robust across quantile measures.