The Effectiveness of Nontraditional Monetary Policy: The Case of J apan

The effectiveness of nontraditional monetary policy is controversial, at least in J apan. 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 J apan for the period from M arch 2001 to M arch 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.