Unconventional Monetary Policies in Japan and the United States During the Pre-COVID 19 Period

This study investigates the impacts of the unconventional monetary policies (UMPs) of the Bank of Japan (BOJ), such as quantitative or qualitative easing and zero or negative interest-rate policy, as well as the policies of the US Federal Reserve Board (FRB), such as a series of QEs, the taper tantrum, and normalization schemes, on the Japanese macro-economy during the pre-COVID 19 period. With particular attention to their relatively short- and medium-term policy effects, the reactions of the macro-economy and financial markets such as stock and foreign exchange rate markets in Japan are empirically considered. In addition, we discuss the second-round effect from the financial markets to the domestic economy. To this end, daily and weekly observations up to 2017 are utilized, and the time-varying volatilities of returns of stock price and foreign exchange rate are properly considered in a time-varying volatility structural vector autoregression model. Moreover, to identify the effect of a single UMP, the analysis is conducted in several subsamples, each of which covers the policy implementation period. By comparing the relative magnitudes of the policy factors of the BOJ (domestic) and FRB (global) on the short-term interest rate, consumption, and inflation rate in Japan, we obtain the finding that the Japanese economy reacts differently to policy shocks in the domestic and global UMPs in each subsample.