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  4. April 2024
  5. Testing the Effectiveness of Unconventional Monetary Policy in Japan and the United States

Testing the Effectiveness of Unconventional Monetary Policy in Japan and the United States

  • Daisuke Ikeda
  • Shangshang Li
  • Sophocles Mavroeidis
  • Francesco Zanetti
American Economic Journal: Macroeconomics
vol. 16, no. 2, April 2024
(pp. 250-86)
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Abstract

Unconventional monetary policy (UMP) may make the effective lower bound (ELB) on the short-term interest rate irrelevant. We develop a theoretical model that underpins our empirical test of this "irrelevance hypothesis," based on the simple idea that under the hypothesis, the short rate can be excluded in any empirical model that accounts for alternative measures of monetary policy. We test the hypothesis for Japan and the United States using a structural vector autoregressive model with the ELB. We firmly reject the hypothesis but find that UMP has had strong delayed effects.

Citation

Ikeda, Daisuke, Shangshang Li, Sophocles Mavroeidis, and Francesco Zanetti. 2024. "Testing the Effectiveness of Unconventional Monetary Policy in Japan and the United States." American Economic Journal: Macroeconomics, 16 (2): 250-86. DOI: 10.1257/mac.20210169

Additional Materials

JEL Classification

  • E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
  • E23 Macroeconomics: Production
  • E31 Price Level; Inflation; Deflation
  • E43 Interest Rates: Determination, Term Structure, and Effects
  • E52 Monetary Policy
  • E58 Central Banks and Their Policies
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