Testing the effectiveness of unconventional monetary policy in Japan and the United States

Working paper

Unconventional monetary policy (UMP) may make the effective lower bound (ELB) on the short-term interest rate irrelevant. We develop a theoretical model that under[1]pins our empirical test of this ‘irrelevance hypothesis,’ based on the simple idea that under the hypothesis, the short rate can be excluded in any empirical model that ac[1]counts for alternative measures of monetary policy. We test the hypothesis for Japan and the United States using a structural vector autoregressive model with the ELB. We firmly reject the hypothesis but find that UMP has had strong delayed effects.

Authors: Ikeda, D; Li, S; Mavroeidis, S; Zanetti, F

• Publication status: Published
• Publisher: University of Oxford
• Article number: 961
• Series: Department of Economics Discussion Paper Series
• Publication date: 2021-05-04
• Paper number: 961
• Language: English
• Keywords: unconventional monetary policy; Effective lower bound; structural VAR