AN INJECTION OF BASE MONEY AT ZERO INTEREST RATES: EMPIRICAL EVIDENCE FROM THE JAPANESE EXPERIENCE 2001-2006

Yuzo Honda, Yoshihiro Kuroki and Minoru Tachibana
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Yuzo Honda: School of Economics, Osaka University
Yoshihiro Kuroki: Chuo University

No 07-08, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP)

Abstract: 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.

Keywords: Quantitative easing; Money injection; Portfolio rebalancing; Stock price channel; Vector autoregression (search for similar items in EconPapers)
JEL-codes: E44 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2007-03

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Persistent link: http://EconPapers.repec.org/RePEc:osk:wpaper:0708

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