Yutaka HARADA

Managing Director of the Institute and Chief Economist, Daiwa Institute of Research Ltd.

Minoru MASUJIMA

Senior Research Fellow, Economic and Social Research Institute, Cabinet Office

This study starts to analyze the comprehensive economic impact and transmission mechanisms of the quantitative monetary easing policy (QMEP) based on Honda et al.[2007]. Analysis using the VAR model has shown the following four observations. First, an increase of base money raises aggregate output. Second, an impact of the QMEP is mainly transmitted through the asset price channel and the bank's balance sheet channel. Not verified are transmission mechanisms through the bank's information production channel, the exchange rate channel, and the policy duration effect. These confirm the results of Honda et al.[2007], but the bank's balance sheet channel is a new finding. Additionally, these channels are reaffirmed when they are more strictly analyzed. Third, the QMEP raises interest rates in the long run, which casts doubt on the policy duration effect and, in particular, the signaling effect. Fourth, even in the period when the traditional interest rate policy was conducted, base money had affected aggregate output. These results suggest that the monetary policy has been effective as a means to ease the economic slump over a long period of time.