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An Injection Of Base Money At Zero Interest Rates: Empirical Evidence From The Japanese Experience 2001-2006

  • Yuzo Honda

    (School of Economics, Osaka University)

  • Yoshihiro Kuroki

    (Chuo University)

  • Minoru Tachibana

    (Osaka Prefecture University)

Many macroeconomists and policymakers have debated the effectiveness of the quantitative monetary-easing policy (QMEP) that was introduced in Japan in 2001. This paper measures the effect of the QMEP on aggregate output and prices, and examines its transmission mechanism, based on the vector autoregressive (VAR) methodology. To ascertain the transmission mechanism, we include several financial market variables in the VAR system. The results show that the QMEP increased aggregate output through the stock price channel. This evidence suggests that further injection of base money is effective even when short-term nominal interest rates are at zero.

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Paper 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 07-08.

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Length: 39 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:osk:wpaper:0708
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