).4 Outline of the analysis A basic model is a vector autoregression (VAR) model consisting of four variables: the industrial production (y), the monetary base (MB), the nominal foreign exchange rate (e), the Nikkei stock average (pk), or five variables adding the consumer price inflation rate (π).
Each variable except the inflation rate is logarithmic value and monthly data are used.5 There are three sample periods: (i) March 2001-March 2006, (ii) March 2001-March 2007, and (iii) March 2002-March 2007. The lag order of the model is four periods. Based on standard recursive restrictions, exogenous changes in the monetary base are identified as the monetary policy shock. Analysis goes as follows.