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Effects and Side Effects of Unconventional Monetary Policy: A Shadow Rate Approach

日本語

December 20, 2024
Atsuki Hirata*1
Sohei Kaihatsu*2
Yoshiyasu Kasai*3
Hiroki Yamamoto*4
Jouchi Nakajima*5

Abstract

Over the past 25 years, the Bank of Japan has conducted a variety of unconventional monetary policies. This paper empirically analyzes the impact of these unconventional monetary policies on Japan's economic activity, prices, and financial sector. First, we investigate the impact of the Bank of Japan's purchase of long-term JGBs on long-term interest rates and find that it lowered the rates by lowering the term premium. Its impact was particularly pronounced following the introduction of Quantitative and Qualitative Monetary Easing (QQE) in 2013. Second, we employ a factor-augmented vector autoregression (FAVAR) and the shadow rates as a proxy of a monetary policy stance reflecting information on the entire government bond yield, and investigate the counterfactual analyses. Our estimation result indicates that the series of unconventional monetary policies had a positive effect on output and prices, and the large-scale monetary easing after the introduction of QQE contributed to fostering a non-deflationary environment in Japan. The empirical analysis also indicates that the unconventional monetary policies may have had the side effect of reducing the profitability of banks by lowering lending rates.

JEL classification
E43, E44, E52, E58

Keywords
Monetary policy, Term structure model, Shadow rate, FAVAR, Counterfactual analysis

The authors are grateful to Daisuke Ikeda, Yuichiro Ito, Naoya Kato, Keiichiro Kobayashi, Junko Koeda, Teppei Nagano, Mitsuhiro Osada, participants of the first workshop on the "Review of Monetary Policy from a Broad Perspective" entitled "The Effects and Side Effects of Unconventional Monetary Policy," and the staff at the Bank of Japan. Any remaining errors are the authors' own. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of Japan.

  1. *1Monetary Affairs Department (currently Research and Statistics Department), Bank of Japan
    E-mail : atsuki.hirata@boj.or.jp
  2. *2Monetary Affairs Department, Bank of Japan
    E-mail : souhei.kaihatsu@boj.or.jp
  3. *3Monetary Affairs Department, Bank of Japan
    E-mail : yoshiyasu.kasai@boj.or.jp
  4. *4Monetary Affairs Department (currently International Department), Bank of Japan
    E-mail : hiroki.yamamoto@boj.or.jp
  5. *5Institute of Economic Research, Hitotsubashi University
    E-mail : nakajima-j@ier.hit-u.ac.jp

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