THE EFFECTS OF UNCONVENTIONAL MONETARY POLICY IN JAPAN: NEW EVIDENCE FROM TIME-VARYING PARAMETER VAR ANALYSIS

This paper investigates the macroeconomic effects of unconventional monetary policies by estimating a time-varying parameter structural vector auto-regression (TVP-VAR) using Japanese monthly data beginning with the implementation of quantitative easing in 2001. The results of the empirical study can be summarized in four points. First, the impulse responses of output to a positive monetary policy shock rose during the period of quantitative easing (March 2001-July 2006) but declined after the comprehensive monetary easing began (October 2010-July 2015). Second, the impulse responses of inflation to a positive monetary policy shock became stably positive after the introduction of inflation targeting in January 2013. Third, the impulse responses of stock prices to positive monetary policy shocks rose each time an unconventional monetary policy was adopted. Finally, the recovery of the credit transmission channel might be attributed to the level of non-performing loans remaining low. The third result implies that increased stock prices from a monetary policy shock are primarily affected by foreign capital because foreign capital responds more strongly than domestic capital to unconventional monetary policy.