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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.

Suggested Citation

  • Schenkelberg, Heike & Watzka, Sebastian, 2013. "Real effects of quantitative easing at the zero lower bound: Structural VAR-based evidence from Japan," Munich Reprints in Economics 19757, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:19757
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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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