The four major banks (BOJ, FRB, BOE and ECB) have adopted unconventional monetary policy, or broadly-defined quantitative easing (QE), in the last several years. The broadly-defined QE can be classified into comprehensive easing (CE) and pure-QE. The former is aimed at purchasing assets of dysfunctional markets and the latter is aimed at expanding monetary base to stimulate demands. The objective of this paper is three-fold. First, various QE adopted by four central banks are classified into CE and pure-QE. Second, the Bank of Japan (BOJ) is a harbinger for most QE measures in its earlier QE period of 2001-2006. Third, effects of BOJ’s QE measures are empirically investigated with focus on the three possible transmission channels with monthly data since January 1999. The long-term interest rate tends to be lower and the yield curve tends to be flattened when the monetary base expands faster than nominal GDP. The yen vis-à-vis the US dollar tends to depreciate when the Japanese monetary base expands faster than the US monetary base. An impact of monetary base expansion on the inflation expectation is not confirmed. Findings are consistent with a view that QE is effective, by lowering the long-term interest rate and the currency depreciation.
Keywords: Quantitative Easing; unconventional monetary policy; inflation targeting; inflation expectation; central bank balance sheet; zero interest rate policy
Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.