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Stock Market Responses Under Quantitative Easing: State Dependence and Transparency in Monetary Policy
Author(s) -
Nakazono Yoshiyuki,
Ikeda Satoshi
Publication year - 2016
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12158
Subject(s) - quantitative easing , monetary policy , economics , monetary economics , zero lower bound , forward guidance , transparency (behavior) , surprise , futures contract , recession , interest rate , stock (firearms) , inflation targeting , open market operation , asset (computer security) , credit channel , financial economics , macroeconomics , central bank , mechanical engineering , social psychology , political science , law , engineering , computer security , computer science , psychology
This 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.