Myths and observations on unconventional monetary policy: takeaways from post-bubble Japan

Reservations are sometimes raised regarding the effectiveness of unconventional monetary policy (UMP) due to concerns about the influences of impaired financial systems and low policy rates. We empirically test if the effects of monetary policy shocks differ across the implementation period of UMP and conventional monetary policy (CMP), or across states of the economy, using Japan’s data from the 1980s to 2016. We find that effects of monetary policy have indeed differed across periods and states, and show that an unexpected 100 basis point cut in shadow rates during the UMP yielded larger expansionary effects on key economic variables than it did during the CMP.