International Spillover Effects of Quantitative Easing Policy: A Case Study on the U.S. and Japan

Abstract

ABSTRACT This study analyses the influence of the changing nature of the U.S. quantitative easing (QE) policy’s international spillover on the Japanese economy following the global financial crisis. Based on existing studies, we construct a two-country vector autoregression model for the U.S. and Japan and estimate the time-varying parameters to comprehend the changing macroeconomic and financial structures of both countries. We not only confirmed the existence of spillover effects but also found significant changes in them over time. The spillover effects on Japan are larger for the real economy in the earlier phase and for financial markets in the later phase of the U.S. QE policy.