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Pre- and post- analysis of Bank of Japan’s policy implementation of negative interest rates

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  • Alexander I. VILLANUEVA

    (Texas Tech University, USA)

Abstract

This paper analyzes the effect of Bank of Japan’s implementation of negative interest rate policy on various macroeconomic indicators – the Nikkei Stock, unemployment rate, foreign exchange rate, gross domestic product (GDP), and inflation rate – in a pre-and-post analysis. The implementation of negative interest rates was in response to conventional monetary policy having little to no effect after the financial crisis of 2008. The Bank of Japan was not the first central bank to implement negative interest rates; however, it is only one of six central banks to do so. For this reason, literature in unconventional monetary policy, specifically negative interest rates, is limited. In this paper, we find evidence that movements in the Nikkei 225 Stock, the exchange rate, unemployment, and GDP coincide with movements expected under conventional monetary policy. We also find evidence of statistically significant impact on GDP and unemployment. However, we could not find evidence it had an effect on the inflation rate. Overall, this paper finds that the unconventional monetary policy of negative interest rates followed similar movements as that of conventional monetary policy.

Suggested Citation

  • Alexander I. VILLANUEVA, 2021. "Pre- and post- analysis of Bank of Japan’s policy implementation of negative interest rates," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(626), S), pages 43-60, Spring.
    • Handle: RePEc:agr:journl:v:1(626):y:2021:i:1(626):p:43-60
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    References listed on IDEAS

    as
    1. Naoyuki Yoshino & Farhad Taghizadeh-Hesary & Hiroaki Miyamoto, 2017. "The Ineffectiveness of Japan’s Negative Interest Rate Policy," ADB Institute Series on Development Economics, in: Naoyuki Yoshino & Farhad Taghizadeh-Hesary (ed.), Japan’s Lost Decade, chapter 0, pages 147-168, Springer.
    2. Stefan Angrick & Naoko Nemoto, 2017. "Central banking below zero: the implementation of negative interest rates in Europe and Japan," Asia Europe Journal, Springer, vol. 15(4), pages 417-443, December.
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    4. Angrick, Stefan & Nemoto, Naoko, 2017. "Central Banking below Zero: The Implementation of Negative Interest Rate Policies in Europe and Japan," ADBI Working Papers 740, Asian Development Bank Institute.
    5. repec:bla:pacecr:v:23:y:2018:i:1:p:3-7 is not listed on IDEAS
    6. Giovanni Dell'Ariccia & Pau Rabanal & Damiano Sandri, 2018. "Unconventional Monetary Policies in the Euro Area, Japan, and the United Kingdom," Journal of Economic Perspectives, American Economic Association, vol. 32(4), pages 147-172, Fall.
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    9. Scott A. Wolla, 2018. "How Do Imports Affect GDP?," Page One Economics Newsletter, Federal Reserve Bank of St. Louis, pages 1-6, September.
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