Estimating the macroeconomic effects of Japan’s expansionary monetary policy under Quantitative and Qualitative Monetary Easing during 2013–2020

This paper estimates the macroeconomic effects of the Bank of Japan’s expansionary monetary policies since the introduction of Quantitative and Qualitative Monetary Easing (QQE) using the Bank of Japan’s large-scale macroeconomic model, the Quarterly Japanese Economic Model. We consider counterfactual paths of major financial variables, such as real interest rates, constructing hypothetical scenarios where the QQE and subsequent easing measures had not been introduced. We then conduct counterfactual simulations to examine how Japan’s macroeconomic variables, such as real GDP and CPI, would have evolved under those hypothetical scenarios. In these settings, we estimate the policy effects on the macroeconomic variables as the difference between actual values and the counterfactual values. The estimation results demonstrate that, on average, during the period from the introduction of QQE to the July–September quarter of 2020, the policy effect on the level of real GDP is between around 0.9 and 1.3 percent, and on the year-on-year rate of change in the CPI (all items less fresh food and energy) is between around 0.6 and 0.7 percentage points.