The Effectiveness of Non-traditional Monetary Policy and the Inflation Target Policy: The Case of Japan in Comparison with the US
This paper analyzes the effectiveness of non-traditional monetary policy measures implemented by the Bank of Japan (BOJ) based on the quantity theory of money. The reduced form equation regression results explain that quantity easing policy measures have very limited effects on the economy, especially on inflation under the zero lower bound on interest rates. Therefore, it is worth noting that stimulating the demand-side economy and hence money demand through credit creation is much important rather than the expansion of money stock under the zero percent interest rates policy. In other words, the new phase of monetary easing policy measures by the BOJ will not be effective to overcome the deflationary gap, although around one percent inflation will be observed in the second and third fiscal year, which is expected to be affected by rise in import price through yen depreciation, according to the scenario simulation in this study.