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Real effects of quantitative easing at the zero lower bound: Structural VAR-based evidence from Japan

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  • Schenkelberg, Heike
  • Watzka, Sebastian

Abstract

Using post-1995 Japanese data we propose a new sign restriction SVAR approach to identify monetary policy shocks when the economy is at the Zero Lower Bound (ZLB). The identifying restrictions are based on predictions of Eggertsson’s (2010) New Keynesian DSGE models when the economy is stuck at the ZLB. A quantitative easing shock leads to a significant decrease in long-term interest rates and significantly increases output and the price level. However, the effects are only transitory. This suggests that while the Japanese quantitative easing experiment was successful in temporarily stimulating real activity, it did not lead to a persistent increase in inflation. These results are interesting not only for Japan, but also for other advanced economies where monetary policy is currently constrained by the ZLB.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 19757.

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Date of creation: 2013
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Publication status: Published in Journal of International Money and Finance 33(2013): pp. 327-357
Handle: RePEc:lmu:muenar:19757

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Cited by:
  1. Alexander Guarín & José Fernando Moreno & Hernando Vargas, 2014. "An Empirical Analysis of the Relationship between US and Colombian Long-Term Sovereign Bond Yields," Borradores de Economia 822, Banco de la Republica de Colombia.
  2. Stefan Behrendt, 2013. "Monetary Transmission via the Central Bank Balance Sheet," Global Financial Markets Working Paper Series 49-2013, Friedrich-Schiller-University Jena.
  3. Leonardo Gambacorta & Boris Hofmann & Gert Peersman, 2014. "The Effectiveness of Unconventional Monetary Policy at the Zero Lower Bound: A Cross‐Country Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(4), pages 615-642, 06.
  4. Michaelis, Henrike & Watzka, Sebastian, 2014. "Are there Differences in the Effectiveness of Quantitative Easing in Japan over Time?," Discussion Papers in Economics 21087, University of Munich, Department of Economics.
  5. Gert Peersman, 2012. "Effectiveness of Unconventional Monetary Policy at the Zero Lower Bound," 2012 Meeting Papers 400, Society for Economic Dynamics.
  6. Alexander Guarín & José Fernando Moreno & Hernando Vargas, 2014. "An Empirical Analysis of the Relationship between US and Colombian Long-Term Sovereign Bond Yields?," BORRADORES DE ECONOMIA 011311, BANCO DE LA REPÚBLICA.

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