Abstract
Abstract This paper examines how the Bank of Japan’s current quantitative and qualitative easing affects the Japanese economy by using a Markov-switching vector autoregression model on daily economic data during January 2012–August 2014. The results reveal that quantitative easing by expanding the monetary base significantly lowers short-term interest rates and raises inflation rates. In addition, the lowered interest rates positively affect inflation rates. Qualitative easing through purchases of long-term government bonds and exchange-traded funds increases economic activity. Purchases of exchange-traded funds stimulate the stock and foreign exchange markets in Japan, while purchases of Japan real estate investment trusts do not have any effect.
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