Quantitative Easing in Japan from 2001 to 2006 and the World Financial Crisis
AbstractThe Bank of Japan adopted the Quantitative Easing (QE) Policy from March 2001 to March 2006. This paper investigates whether or not this QE had an effect in stimulating real economy in Japan. The identification of policy effect in the above Japanese case enables us to evaluate indirectly the effectiveness of the non-traditional monetary policy employed by US Federal Reserve Board (FRB) or the Bank of England (BOE) just after the collapse of Lehman Brothers. We extend vector autoregression analysis by Honda, Kuroki, and Tachibana (2007, 2010; HKT), including monthly samples before and after the period of QE, but at the same time fully exploiting prior information on the structural change of operating targets of monetary policy from call rate to bank reserve during the period of QE. There are two main results. First, this paper reconfirms our qualitative findings in HKT. That is, increases in bank reserve balances boost stock prices first, and then industrial production. Secondly, an increase in bank reserve balances by 1 trillion yen led to the rise of stock prices by the range of 0.2% to 0.9%, and to the increase of industrial production by the range of 0.03% to 0.18%. Finally, FRB called their policy after the Lehman shock gcredit easingh policy, but their policy includes both aspects of credit easing and QE. The results of the present paper suggest that even the QE aspect alone of the non-traditional monetary policy by FRB or BOE should have significant stimulating policy effects.
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Bibliographic InfoPaper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 11-18.
Length: 28 pages
Date of creation: May 2011
Date of revision:
Quantitative easing; Money injection; Portfolio rebalancing; Stock price channel; Vector autoregression;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-30 (All new papers)
- NEP-CBA-2011-05-30 (Central Banking)
- NEP-MAC-2011-05-30 (Macroeconomics)
- NEP-MON-2011-05-30 (Monetary Economics)
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