An Analysis: Quantitative Easing Policy Was Effective in Buoying the Japanese Economy

The Bank of Japan’s quantitative easing policy was introduced in March 2001 and terminated in March 2006. Initially, it was not certain whether the unprecedented policy would succeed, and in a sense, its introduction was experimental. Was the quantitative easing policy effective as a new monetary policy measure? Although many observers have negative views about the effects of the policy, we have attempted to examine its effects using a macro-economic model. In a nutshell, the quantitative easing policy was one in which the operating target of money market operations was shifted from interest rates to a quantitative indicator. The quantitative indicator was the outstanding balance of current accounts held by banks at the Bank of Japan. When this policy was introduced, the central bank also strengthened its commitment by clearly stating that it would continue quantitative easing policy until “the year-on-year rate of change in the consumer price index (CPI) (excluding fresh food) registered zero percent or higher on a sustainable basis.” Quantitative Easing Examined through a Macro-model The following is an examination of the effects of monetary easing on the rea