Assessing the Long-Term Impact of Monetary Policy
December 27, 2024
Shunsuke Haba*1
Yuichiro Ito*2
Shogo Nakano*3
Takahiro Yamanaka*4
Abstract
The "hysteresis effect," in which short-term economic shocks can influence long-term economic trends, has been widely recognized. This paper presents empirical analyses of the long-term impact of monetary policy on the supply side (productivity and potential GDP, etc.) of the Japanese economy. First, we identify monetary policy shocks using various methods and examine their long-term impact on potential GDP over the past 25 years through the local projection method. The results suggest that monetary easing may have had a positive impact on potential GDP through capital accumulation, but no statistically significant relationship is confirmed. Next, we examine the impact of monetary policy on productivity, using firm-level data. The results indicate that while monetary easing could enhance productivity within individual firms, it may also act to suppress productivity growth by causing distortions in resource allocation among firms. However, in the long-term, the analysis reveals no evidence of a statistically significant relationship. Thus, from the empirical analyses using currently available data, no clear conclusions about the impact of monetary easing on the supply side of the economy have been reached, either positive or negative. There are various mechanisms at work in the long-term impact of monetary policy, and these effects may vary, depending on economic conditions. Ongoing examination from a broad perspective remains essential to deepen our understanding of the long-term impact of monetary policy.
- JEL classification
- C32, C33, E22, E24, E52, O47
- Keywords
- Monetary Policy, Hysteresis Effect, Productivity, Reallocation
In writing this paper, we received valuable comments from Ichiro Fukunaga, Sohei Kaihatsu, Yoshiyasu Kasai, and BOJ staff members. Any errors remaining in this paper are those of the authors themselves. Additionally, the views expressed herein are those of the authors and do not necessarily reflect the official views of the Bank of Japan.
- *1Monetary Affairs Department, Bank of Japan
E-mail : shunsuke.haba@boj.or.jp - *2Monetary Affairs Department, Bank of Japan
E-mail : yuuichirou.itou@boj.or.jp - *3Monetary Affairs Department, Bank of Japan
E-mail : shougo.nakano@boj.or.jp - *4Monetary Affairs Department, Bank of Japan
E-mail : takahiro.yamanaka@boj.or.jp
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