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

Hiroyuki Ijiri and Yoichi Matsubayashi ()
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Hiroyuki Ijiri: Graduate School of Economics, Kobe University

No 1611, Discussion Papers from 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.

Keywords: Quantitative easing (QE) policy; Time-Varying Parameter vector autoregressive (TVP-VAR) model; exchange rates; stock prices; export. (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2016-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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