Analyse the Effects of the Bank of Japan's Anti-Deflationary Quantitative Easing Policy

MunichPersonal RePEcArchive

Japanese quantitative easing: The effects

and constraintsof anti-deflationary

monetary expansions

Zammit,Robert

Department of Economics,University of Malta

October 2006

Onlineat http://mpra.ub.uni -muenchen.de/3361/

MPRA Paper No. 3361,posted07. November 2007/ 03:09

JAPANESE QUANTITATIVE EASING:

THE EFFECTS AND CONSTRAINTS OF ANTI-

DEFLATIONARY MONETARY EXPANSIONS

ROBERT ZAMMIT

A DISSERTATION IN THE FACULTY OF

ECONOMICS, MANAGEMENT AND ACCOUNTANCY

SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE DEGREE OF

B.COMMERCE (HONS) ECONOMICS AT THE

UNIVERSITY OF MALTA

MAY 2007

Declaration of Authenticity

I, the undersigned, hereby declare that this dissertation has been compiled by myself

using available information in published books and journals, documentation, articles,

and internet sources duly referred to in my bibliography.

_________________

Robert Zammit

(I.D. No. 271185M)

ii

Acknowledgements

I wish to thank all those who, in their own way, have helped me write this dissertation,

including my tutor Professor Edward Scicluna for his guidance and advice, members of

the Faculty of Economics, Management and Accountancy, especially Professor Joseph

Falzon and Mr Carl Camilleri, and my family.

I also wish to thank the Japanese Consulate in Malta and the Japanese Ministry of

Foreign Affairs in Tokyo, to whom I am indebted for instilling in me a love for all

things Japanese as a result of my attending the Japan Study Tour held in Tokyo in 2005.

iii

Abstract

Title: Japanese Quantitative Easing: The Effects and Constraints of

Anti-Deflationary Monetary Expansions

Author: Robert Zammit

Date: May 2007

Appointed Tutor: Professor Edward Scicluna

Summary

The aim of this dissertation is to empirically analyse the effects of the Bank of Japan's

anti-deflationary Quantitative Easing Policy carried out between March 2001 and April

2006. In doing so, this study also reviews the zero bound to interest rates, defined as the

primary constraint to the effectiveness of conventional monetary policy at the interest

rate floor. The results of the economic models contained in this study confirm the

economic significance of a sustained increase in liquidity in fostering a return to

inflationary pressures. Moreover, the findings of the study confirm that effective anti-

deflationary policies may not necessarily entail extreme measures on the part of a

central bank; on the other hand, credibility coupled with a resolved commitment may

very well be enough to provide for positive macroeconomic repercussions.

iv

Table of Contents

Acknowledgments iii

Abstract iv

Table of Contents v

List of Acronyms viii

Chapter One 1 - Introduction 1

Chapter