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Real Effects of Quantitative Easing at the Zero-Lower Bound: Structural VAR-Based Evidence from Japan

35 Pages Posted: 22 Jun 2011  

Heike Schenkelberg

Ludwig Maximilian University of Munich - Munich Graduate School of Economics (MGSE)

Sebastian Watzka

Ludwig Maximilian University of Munich

Date Written: June 14, 2011

Abstract

Using post-1995 Japanese data we propose a theory-based sign-restriction SVAR approach to identify monetary policy shocks when the economy is at the zero-lower bound. The identifying restrictions accord with predictions of corresponding DSGE models. Our results show that while a quantitative easing shock leads to a significant but temporary rise in output, the effect on inflation is not significantly different from zero. This suggests that while the Japanese Quantitative Easing experiment was successful in stimulating real activity in the shortrun, it did not lead to any increase in inflation. These results are interesting not only for Japan, but also for other advanced economies where monetary policy is currently constrained by the ZLB.

JEL Classification: E430, E510, E520, E580

Suggested Citation

Schenkelberg, Heike and Watzka, Sebastian, Real Effects of Quantitative Easing at the Zero-Lower Bound: Structural VAR-Based Evidence from Japan (June 14, 2011). CESifo Working Paper Series No. 3486. Available at SSRN: https://ssrn.com/abstract=1864529

Heike Schenkelberg

Ludwig Maximilian University of Munich - Munich Graduate School of Economics (MGSE) ( email )

Kaulbachstrasse 45
München, 80539
Germany

Sebastian Watzka (Contact Author)

Ludwig Maximilian University of Munich ( email )

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

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