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Quantitative Easing Policy, Exchange Rates and Business Activity by Industry in Japan from 2001-2006

Author

Listed:
  • Hiroyuki Ijiri

    (Graduate School of Economics, Kobe University)

  • Yoichi Matsubayashi

    (Graduate School of Economics, Kobe University)

Abstract

This study empirically investigates the dynamic effect of Japan's quantitative easing (QE) policy on industry-specific business activity using a time-varying parameter model and monthly data spanning 2001-2006. This model yields more reliable and precise results than earlier fixed effects models using quarterly data. Its first major finding is that the effect of QE on yen-dollar exchange rates varied during the period and is most evident in its final phases, whereas its effect on stock prices persisted almost continuously. Second, QE's effect on Japan's real economy-that is, on industrial production- varies by industry and over time. Most notably, QE raised production via yen-dollar depreciation in the machinery sector (e.g. General and Transport machinery), Chemical, Nonferrous metal, and Iron and steel during its latter phases. This study is the first to investigate how unconventional monetary policy influences Japan's real economy by analyzing the yen-dollar exchange rate during the second half of QE implementation in Japan.

Suggested Citation

  • Hiroyuki Ijiri & Yoichi Matsubayashi, 2016. "Quantitative Easing Policy, Exchange Rates and Business Activity by Industry in Japan from 2001-2006," Discussion Papers 1611, Graduate School of Economics, Kobe University.
  • Handle: RePEc:koe:wpaper:1611
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    File URL: http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2016/1611.pdf
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    References listed on IDEAS

    as
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    4. Moussa, Zakaria, 2010. "The Japanese Quantitative Easing Policy under Scrutiny: A Time-Varying Parameter Factor-Augmented VAR Model," MPRA Paper 29429, University Library of Munich, Germany.
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    More about this item

    Keywords

    Quantitative easing (QE) policy; Time-Varying Parameter vector autoregressive (TVP-VAR) model; exchange rates; stock prices; export.;

    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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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