3.2.1 Anticipated Impact Of Quantitative Easing Kobayashi, T. et al.

(2006) studied one of the primary motivations offered by the Bank of Japan (B J) for its !uantitative easin" s#heme a##ordin" to keep in "ood #ondition for a #urrent a##ount balan#e tar"et in surplus of re!uired reserves. The reason that to effe#tively pe""in" short$term interest rates at %ero &as to maintain #redit e'tension by the troubled Japanese finan#ial market. The authors performed an event study about the anti#ipated impa#t of !uantitative easin" on the Japanese finan#ial se#tor by studyin" the effe#t of the presentation and development of the poli#y on Japanese bank e!uity values. The authors dis#overed that e'#ess returns of Japanese banks &ere better &hen rises in the Bank of Japan #urrent a##ount balan#e tar"et &ere kept #ompanied by (non$standard) e'pansionary poli#ies, su#h as raisin" the ma'imum on Bank of Japan pur#hases of lon"$term Japanese "overnment bonds. Kobayashi, T. et al. (2006) also presented #ross$se#tional eviden#e that su""ested that the finan#ial market be#ame a&are that the !uantitative easin" s#heme &ould e'#essively benefited fis#ally those &eaker Japanese banks. *pie"el, +. +. and ,amori, -. (2002) observed that there is t&o important finan#ial monitorin" reform a#ts, .inan#ial /e#overy 0#t, and /apid /evitali%ation 0#t &ere a##epted in Japan in the late$1223s. .inan#ial /e#overy 0#t had #reated a brid"e bank stru#ture and offered funds for the resolution of failed banks, &hile /apid /evitali%ation 0#t offered funds for the assistan#e of troubled banks. The authors also sho&n bankin" se#tor additionally #alled for transformations to enhan#e the monitorin" environment &hile both of the a#ts had offered some "overnment support to the se#tor. By usin" an event study outline, *pie"el, +. +. and ,amori, -. (2002) analy%ed the eviden#e in e!uity markets in relation to the anti#ipated impa#t of the monitorin" reforms. The authors dis#overed the eviden#e they obtained had su""ested that .inan#ial /e#overy 0#t &ere likely to offended lar"e banks, at the same time as the anti#ipated impa#t of the a#t throu"h finan#ial po&er &as mi'ed. 4ompared to the .inan#ial /e#overy 0#t, the authors sho&n that the anti#ipated impa#t of the /apid /evitali%ation 0#t &as likely to be e'pli#itly a"ainst reform, as ne&s favorable to its &ay e'#essively

benefited the lar"e and &eak Japanese banks. 5n a re#ent study of rea#tion times, -aka6ima, T. (2007) studied about an open$ e#onomy model &ith the 4alvo$type sti#ky pri#es. The author "enerally investi"ates the situation in &hi#h the monetary authority in ea#h #ountry #ollaborates so as to boost the &elfare in the &orld. Besides that, the authors found out that &here the %ero lo&er bound (89B) on nominal interest rates never related, the best inflation$tar"etin" rule in the open$e#onomy model &as a##urately the same kind as in the #losed$e#onomy model. -evertheless, the author still noti#ed &hen the 89B mi"ht be #onne#ted &hile the ideal paths are evaluated. -aka6ima, T. (2007) also mentioned out that the ideal paths of the best e'#han"e rate in the model literally display "ro&th of the #urren#y of the #ountry &here the 89B binds in the e'istin" 6ournals that the author studied. 3.2.2 Reaction of Financial Market Bernanke et al. (200:) anti#ipated about the a#hievement over the years in diminishin" inflation and the avera"e level of nominal interest rates had boosted the probability that the nominal poli#y interest rate &ould be#ome #ontrolled by the %ero lo&er bound. The authors predi#ted that &hen the nominal poli#y interest rate be#ome #onstrained, a #entral bank &ould not stimulate the amount plea by further interest$rate redu#tions and need to depend on another possibility of (non$standard) poli#y. To assess the possibility effe#tiveness of (non$standard) poli#ies, the authors e'amined #entral bank statements or other types of finan#ial or e#onomi# ne&s surrounded by the short$ term performan#e of sele#ted asset pri#es and re#kon (no$arbitra"e) models of the term stru#ture for the ;nited *tates and Japan. There &as some eviden#e sho&n that #entral bank #ommuni#ations #ould help to #reate publi# e'pe#tations of future poli#y movements. Besides, asset pur#hases in lar"e volume by a #entral bank &ould be able to #han"e the pri#e or yield of the tar"eted asset. <a"non et al. (2011) investi"ated the .ederal /eserve=s traditional poli#y me#hanism, the tar"et federal funds rate, &ere su##essfully at its %ero lo&er bound sin#e

>e#ember 2003. 5n order to build up and make better the position of monetary poli#y as the e#onomi# outlook "et mu#h &orse, the authors su""ested that the .ederal /eserve a#!uired si"nifi#ant !uantities of assets &ith medium and lon" maturities. ?'planation had been "iven by the authors on the &ays of these pur#hases &ere applied and dis#ussed the instruments throu"h &hi#h they #an have an effe#t on the e#onomy. Besides, the authors displayed some eviden#es that the pur#hases &ould dire#ted to e#onomi#ally meanin"ful and lon"$lastin" falls in lon"er$term interest rates on a sort of se#urities, involvin" the se#urities that &ere not add into the pur#hase pro"rams. These redu#tions in interest rates mainly &ere the si"n of redu#in" risk premiums, to"ether &ith term premiums some&hat better than redu#e probabilities of future short$term interest rates. 3.2.3 Impact on Interest Rates rphanides, 0. (200@) shared an opinion about the e'perien#e of the ;.*. e#onomy durin" the mid$12@0s. The author stated that short$term nominal interest rates &ere #ontinuously near to %ero &here should taken as eviden#e at times that monetary poli#y &as ineffe#tive and the e#onomy &as in a (li!uidity trap.) There &as no eviden#e to support su#h statements after e'amined the histori#al poli#y re#ord #losely for a period of time. 5n an environment of very lo& short$term nominal interest rates, rphanides, 0. (200@) estimated the in#omplete and errati# re#overy from the <reat /e#ession #ould be dra&n to a failure to e'e#ute #onstantly e'pansionary poli#y due to an ina##urate understandin" of monetary poli#y. Aith the observation on #ommon point &ith the Japanese understandin" durin" the late$1220s, and the insuffi#ien#y of short$term interest rates sho&n as the si"ns of the standpoint of monetary poli#y. Besides, a stron" operatin" method for applyin" monetary poli#y in a lo& interest rate environment by ad6ustin" the maturity of tar"eted interest rate instruments &ere revie&ed by rphanides, 0. (200@). Baba at al. (2006) studied the interest rates on ne"otiable #ertifi#ates of deposit distributed by personal banks, presented that under the Bank of Japan=s %ero interest rate poli#y and !uantitative monetary easin" poli#y, not only the #on#entrations of finan#ial market rates but also the distribution of interest rates a#ross banks have redu#ed #losely

to %ero. The authors sho&n that a redu#tion in the dispersion of #redit ratin"s of the banks &ere not #ompletely #larified the redu#tion in the dispersion of the rates. The authors also provided some proof on the responsibility of the Bank of Japan=s monetary poli#y in de#reasin" risk premiums. Ka"raoka, ,. and +oussa, 8. (201@) indentified a main matter in their resear#h about !uantitative easin" monetary poli#y (B?+C) &as the ability of the strate"y to effe#t the interest rates terms struture. By applyin" a dynami# model for the yield #urve &ith time varyin" parameters to the Japanese statisti#s that the authors "athered, they provided three per#eptions. .irstly, the e'pe#tations assumption of the term stru#ture of interest rates is normally supported even thou"h it is still on the B?+C period. *e#ondly, the investi"ation results sho&n that the involvement of ma#roe#onomi# variables on the differen#e of the yield #urve is #omparatively small, spe#ifi#ally durin" the B?+C period. The authors also found that the yield #urve elements #ontribute only sli"htly to inflation differen#e as the feedba#k effe#t. -evertheless, the authors #redited for more related part of output "ap dynami#s. Thirdly, the authors stated out that durin" the hi"h interest rate periods o##urs, monetary poli#y sho#k has a lar"e effe#t on yield #urve level fa#tor.

Kobayashi, T., *pie"el, +.+. and ,amori, -. (2006) Buantitative ?asin" and Japanese Bank ?!uity Dalues. Journal of Japanese 5nternational ?#onomies, 20, 622$721. 0vailableE httpEFF&&&.frbsf.or"Fe#onomi#$resear#hFfilesF&p06$12bk.pdfF G201@, -ovember 22H -aka6ima, T. (2007) 9i!uidity trap and optimal monetary poli#y in open e#onomies. J. Japanese Int. Economies 22 (1), 1I@@. 0vailableE httpEFF&&&.i6#b.or"F6ournalFi6#b11!@aJ.htm G201@, -ovember 22H 0uerba#h, 0.J. and bstfeld, +. (200@) The 4ase for pen$+arket Cur#hases 5n a 9i!uidity Trap. -0T5 -09 B;/?0; . ?4 - +54 /?*?0/4K. 0vailableE httpEFF&&&.nber.or"FpapersF&231:F G201@, -ovember 22H Bernanke, B.*., /einhart, D./., and *a#k, B.C (200:) +onetary Coli#y 0lternatives at the 8ero BoundE 0n ?mpiri#al 0ssessment. .inan#e and ?#onomi#s >is#ussion *eries. 0vailableE httpEFF&&&.federalreserve."ovFpubsFfedsF200:F200::3F200::3pap.pdf G201@, -ovember 22H rphanides, 0. (200@) +onetary Coli#y in >eflationE The 9i!uidity Trap in Kistory and Cra#ti#e. 0vailableE httpEFF&&&.federalreserve."ovFpubsFfedsF200:F200:01F200:01pap.pdf G201@, -ovember 22H *pie"el, +.+. and -obuyoshi ,amori (2002) The 5mpa#t of Japan=s .inan#ial *tabili%ation 9a&s on Bank ?!uity Dalues. 0vailableE httpEFF&&&.frbsf.or"Fe#onomi#$ resear#hFfilesF*pie"el,amori.pdf G201@, -ovember @0H Baba, -., -akashima, +., *hi"emi, ,. and ;eda, K. (2006) The Bank of Japan=s +onetary Coli#y and Bank /isk Cremiums in the +oney +arket. 5nternational Journal of 4entral Bankin". 0vailableE httpEFF&&&.i6#b.or"F6ournalFi6#b06!1a@.pdfF G201@, -ovember @0)

<a"non, J., /askin, +., /ema#he, J. and *a#k, B. (2011) The .inan#ial +arket ?ffe#ts of the .ederal /eserve=s 9ar"e$*#ale 0sset Cur#hases. 5nternational Journal of 4entral Bankin". 0vailableE httpEFF&&&.i6#b.or"F6ournalFi6#b11!1a1.pdf G201@, -ovember @0H

Jarro&, /. and 9i, K. (201@) The 5mpa#t of Buantitative ?asin" on the ;.*. Term *tru#ture of 5nterest /ates. Johnson *#hool /esear#h Caper -o. 2$2012. 0vailbleE http://papers.ssrn.com/sol3/papers.cfm?abstract_id=20261 2 G201@, -ovember @0H Ka"raoka, ,. and +oussa, 8. (201@) Buantitative easin", #redibility and the time$varyin" dynami#s of the term stru#ture of interest rate in Japan. Journal of 5nternational .inan#ial +arkets, 5nstitutions and +oney Dolume 2J, July 201@, Ca"es 131I201. 0vailableE httpEFF&&&.s#ien#edire#t.#omFs#ien#eFarti#leFpiiF*10:2::@11@000206 G201@, -ovember @0H