Non-traditional Monetary Policy Research Articles

Comparison of determinants in the different property sectors of Japanese REIT market under non-traditional monetary policy regimes

Stock price has a positive impact on the real estate investment trust (REIT) property sector index series (office, residential, and retail and logistics) in all three sample periods. Interest rate has no significant impact on any of the sectors in the REIT property sector index series under the comprehensive easing policy regime. On the other hand, interest rate has a negative impact on each of the sectors in the REIT Property Sector Index Series under the quantitative and qualitative easing, and the negative interest rate policy regimes. The negative impact of interest rate on the REIT market is larger under the quantitative and qualitative policy regime than it is under the negative interest rate policy regime. As regards the sensitivity of the three REIT property sectors to stock price and interest rate, no significant differences are found in any of the samples; the three different sectors are almost equally influenced by stock price and long-term interest rate in each sample.

Comparison of determinants in the different property sectors of Japanese REIT market under non-traditional monetary policy regimes

Comparison of determinants in the different property sectors of Japanese REIT market under non-traditional monetary policy regimes

Nontraditional Monetary Policy in a Model of Default Risks and Collateral in the Absence of Commitment

We show that a central bank could improve the allocation of resources by delivering the defaulting party's collateral goods to those who consume the most quickly. We base our discussion on Mills and Reed [1]'s repo contract model, which shows that the consumption of the lender will be the same whether the borrower is a productive agent or an unproductive agent. We extend their model by considering shocks to the second period of lenders' lives, which force them to consume within an early stage of the second period of their lives. The shock could make the consumption of lenders vary depending on the timing of transactions in the goods market. We show that a central bank could make the consumption of lenders constant regardless of the timing of transactions in the goods market, and could achieve better resource allocation by using various nontraditional monetary policy tools.

The Cointegration Analysis of the Long-term Bond Rates in Japan under the Zero Lower Bound Problems

In April of 2013, Bank of Japan introduced Qualitative and Quantitative Easing (QQE). And the unexpected announcement of additional QQE in October of 2014 surprised many market participants. Just after both announcements stock prices of Japanese market rose rapidly. BOJ had introduced non-traditional monetary policies not only QQE, but Zero Interest Rate Policy (ZIRP) and Quantitative Easing (QE) for about 15 years. Not only Japan but U.S. Federal Reserve, Bank of England of U.K. (BOE) and Sveriges Riksbank of Sweden have also introduced QE. Especially, Federal Reserve Board of U.S. had executed the non-traditional monetary policies of QE1, QE2 and QE3 since November of 2008 till October of 2014 by the chairmen, Bernanke and Yellen. It continues another non-traditional monetary policy, ZIRP under the slowly recovering economy. Meanwhile ECB announced their introduction of QE on January 22 of 2015 and began buying government bonds on March 9, when Europe’s fragile recovery is lagging the rest of the world and a drop in prices is threatening to make things worse. However none of them had not brought adequate result by the non-traditional monetary policies yet. In this thesis we analyze the relationship between Japanese long-term interest rates and its non-traditional monetary policies under persistent and serious deflation. We investigate the extent to which change rates of monetary base and amounts of loan outstanding of banks and other proxy variables affect both the nominal and real interest rates of 10 year JGBs. We used a fundamental bond rate model based on Sargent (1969) and test the cointegrating relationship among the variables. Then we estimate the model with cointegrating relationship by Dynamic OLS and Error Correction model by GMM.

Stock Market Responses Under Quantitative Easing: State Dependence and Transparency in Monetary Policy

AbstractThis paper evaluates the effects of unconventional monetary policies adopted by the Bank of Japan from the year 2001 to 2006. A new measure is proposed to identify a nontraditional monetary policy shock from policy packages under the zero lower bound of short‐term nominal interest rates during the quantitative easing period, using data on intraday 3‐month Euroyen futures rates. We find that stock markets do not react to a policy surprise in an expected manner and negatively respond to a monetary easing surprise. Moreover, we find an asymmetric response during a boom and a recession and a nonlinear reaction because of increasing uncertainty concerning future inflation dynamics and the enhancement of monetary policy transparency. Our result suggests that it is difficult to implement unconventional monetary policy to manage agents’ expectations and a ‘lean against the wind’ policy to prevent asset bubbles, particularly at the zero bound.

Politicko-ekonomické varianty vyhlazování hospodářského cyklu v soudobých úvěrových ekonomikách

The article formulates the general political-economic possibilities for smoothing of business cycles under the realistic assumptions of the current credit-economy. Firstly it endeavours to explain the mechanism of the financial and real economy functioning with an emphasis on banking sector. The initial theoretical model is considered as unrealistic but proper for demonstration of the consequences of money endogeneity, mechanism of banking financing and dependency of economic growth on credit growth and savings. On the basis of this explanation the article identifies the real causes of credit cycles in the current credit-economy and performs some relevant empirical evidence. The causes include insufficient credit growth, significant concentration of monetary assets, disproportionate development between inflation and excess money growth, deregulation, transmission of credit risk, deleveraging of private sector and imperfect steering of interest rates. Subsequently, author constitutes the basic political-economic tools which could possibly eliminate (or at least mitigate) both the deep and shallow recessions in ex-ante and ex-post periods. The study concludes that possible political-economic tools are following: traditional and non-traditional monetary policy, fiscal expansion, redistribution through progressive taxation, microeconomic and macroeconomic regulation. The entire study is based on US data.

The Effectiveness of Nontraditional Monetary Policy: The Case of Japan

The effectiveness of nontraditional monetary policy is controversial, at least in Japan. Making use of data from the quantitative easing monetary policy period, this paper presents statistical evidence on the effectiveness of nontraditional monetary policy. We demonstrate empirically that the quantitative easing monetary policy adopted by the Bank of Japan for the period from March 2001 to March 2006 had a stimulating effect on investment and production, at least through Tobin’s q channel. We also provide a simple operational model in which an injection of base money lowers the interest rate on bonds, reduces the required rate of returns from capital stocks and depreciates the value of the domestic currency.

The Federal Reserve's Framework for Monetary Policy: Recent Changes and New Questions

In recent years, the Federal Reserve has made substantial changes to its framework for monetary policymaking by providing greater clarity regarding its objectives, its intentions regarding the use of monetary policy--including nontraditional policy tools such as forward guidance and asset purchases--in the pursuit of those objectives, and its broader policy strategy. These changes reflected both a response to changes in economists' understanding of the most effective way to implement monetary policy and a response to specific challenges posed by the financial crisis and its aftermath, particularly the effective lower bound on nominal interest rates. We trace the recent evolution of the Federal Reserve's framework, and use a small-scale macro model and a simple static model to help illuminate the approaches taken with nontraditional monetary policy tools. A number of foreign central banks have made similar innovations in response to similar developments. On balance, the Federal Reserve has moved closer to flexible inflation targeting, but the Federal Reserve's approach includes a balanced focus on two objectives and the use of a flexible horizon over which policy aims to foster those objectives. Going forward, further changes in central banks' frameworks may be needed to address issues raised by the financial crisis. For example, some have suggested that the sustained period at the effective lower bound points to the need for central banks to establish a different policy objective, such as a higher inflation target or a nominal income target. We use our small-scale model of the U.S. economy to examine the potential benefits and costs of such changes. We also discuss the broad issue of how central banks should integrate financial stability policy and monetary policy.

Japan's Deflation and the Bank of Japan's Experience with Nontraditional Monetary Policy

This paper offers a brief summary of nontraditional monetary policy measures adopted by the Bank of Japan (BOJ) during the last two decades, especially the period 1998–2006, when the so‐called zero interest rate policy (ZIRP) and quantitative easing (QE) were put in place. The paper begins with a typology of policies usable at low interest and inflation rates. They are: strategy (i), management of expectations about future policy rates; strategy (ii), targeted asset purchases; and strategy (iii), QE. Alternatively, QE may be decomposed into a pure attempt to inflate the central bank balance sheet, QE0, purchases of assets in dysfunctional markets, QE1, and purchases of assets to generate portfolio rebalancing, QE2. Strategy (ii), when nonsterilized, is either QE1 or QE2. Using this typology, I review the measures adopted by the BOJ and discuss evidence on the effectiveness of the measures. The broad conclusion is that strategies (i) and (ii) have affected interest rates, while no clear evidence exists so far of the effectiveness of the pure form of strategy (iii), or QE0. Strategy (ii) has been effective especially in containing risk/liquidity premiums in dysfunctional money markets; that is, QE1 has been effective. The effectiveness of QE2, however, is less clear‐cut. The strategies, however, have failed to bring the Japanese economy out of the deflation trap so far. I discuss some possible reasons for this and also implications for the current U.S. situation.

THE EFFECTIVENESS OF NON-TRADITIONAL MONETARY POLICY MEASURES: THE CASE OF THE BANK OF JAPAN*

This paper summarizes non-traditional monetary policy measures adopted by the Bank of Japan (BOJ) during the last 2 decades and by other G7 central banks since the start of the current global financial turmoil and analyses the effectiveness of such measures. The paper begins with a typology of policies usable near the zero lower bound on interest rates. They are: (i) forward guidance of future policy rates; (ii) targeted asset purchases; and (iii) quantitative easing. Using this typology, I review the measures adopted by the BOJ and other central banks. I then offer a news analysis of the effects of the measures adopted by the BOJ on asset prices, comparing them with those adopted by the Fed. Many of the measures, with the exception of strategy (iii), are shown to have moved asset prices in the expected directions. Another exception is that most of the monetary easing measures failed to weaken the yen. Despite some effects on asset prices, however, the measures have failed to stop the deflationary trend of the Japanese economy clearly. I discuss some possible reasons for this and more general implications for monetary policy.

The effects of ‘Gesell’ (Currency) taxes in promoting Japan's economic recovery

The traditional interest rate policy has lost its potency due to the zero-lower bound of nominal interest rates and the gradual accelerating deflation in Japan. Without stopping deflation, the Japanese government may face a rapid erosion of credit worthiness due to an uncontrolled budget deficit. In order to cope with this unusual situation, a non-traditional monetary policy measure is proposed. A negative nominal interest rate is needed to clear Japanese markets and can be achieved by levying a tax on all the government-guaranteed yen financial assets. This is a modified version of Gesell's stamp duty on currency for actual implementation in the contemporary context. The benefits and side effects of this tax for Japan are analyzed here.