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Effectiveness and Transmission Mechanisms of Japan's Quantitative Monetary Easing Policy

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  • Yutaka Harada
  • Minoru Masujima

Abstract

This study analyzes the overall economic impact and transmission mechanisms of Japan's quantitative monetary easing policy (QMEP) based on Honda, Kuroki, and Tachibana (2007). A vector auto regression (VAR) model analysis has led to the following four observations. First, an increase of base money raises aggregate output. Second, the impact of the QMEP is primarily transmitted through the channels of asset prices and bank balance sheets. Not verified are the transmission channels of the bank's information production, exchange rate, or the policy duration effect. These findings confirm the results of Honda, Kuroki, and Tachibana (2007). but the identification of bank balance sheets as a transmission channel represents a new finding. Additionally, these channels were reaffirmed even when subject to more rigorous analysis. Third, the QMEP raises interest rates in the long term, which raises doubt about the validity of the policy duration effect and, in particular, the signaling effect. Fourth, even during the period when a traditional interest rate policy was being implemented, base money had an effect on aggregate output. These results suggest that Japan's monetary policy has been an effective means of easing Japan's prolonged economic downturn.

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  • Yutaka Harada & Minoru Masujima, 2009. "Effectiveness and Transmission Mechanisms of Japan's Quantitative Monetary Easing Policy," Japanese Economy, Taylor & Francis Journals, vol. 36(1), pages 48-105.
    • Handle: RePEc:mes:jpneco:v:36:y:2009:i:1:p:48-105
    DOI: 10.2753/JES1097-203X360103
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    Cited by:

    1. Harimaya, Kozo & Jinushi, Toshiki, 2023. "The effects of quantitative easing policy on bank lending: Evidence from Japanese regional banks," Japan and the World Economy, Elsevier, vol. 67(C).
    2. Kansho Piotr Otsubo, 2018. "The Effects of Fiscal and Monetary Policies in Japan: What Combination of Policies Should Be Used?," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 9(01n02), pages 1-25, February.
    3. Kansho Piotr Otsubo, 2018. "How Does Unconventional Monetary Policy Influence the Economy in Japan?," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(3), pages 308-330, March.
    4. Bhanupong Nidhiprabha, 2016. "Impacts of Quantitative Monetary Easing Policy in the United States and Japan on the Thai Economy," The Developing Economies, Institute of Developing Economies, vol. 54(1), pages 80-102, March.
    5. Fatouh, Mahmoud & Markose, Sheri & Giansante, Simone, 2021. "The impact of quantitative easing on UK bank lending: Why banks do not lend to businesses?," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 928-953.
    6. Lau, Wee-Yeap & Yip, Tien-Ming, 2020. "How do monetary transmission channels influence inflation in the short and long run? Evidence from the QQE regime in Japan," The Journal of Economic Asymmetries, Elsevier, vol. 21(C).

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