Verification of Monetary Policy Effect through the Banking Sector: Empirical analysis using Japanese macro-level data

Monetary policy has benefits such as seigniorage and an economic stimulus effect while government bonds held-appraisal loss, interest payments to current accounts, and increasing reserve deposit rates occur in the exit strategy. In particular, the expanded monetary base and prolonged average life resulting from quantitative and qualitative easing are risks for increasing the cost. In this paper, under such awareness of these problems, the effect of monetary policy on corporate investment is examined by making a structural estimation of the simple macro model which includes Tobin's q type capital investment function and banks' portfolio function. The following is a summary of the results: (i) Policy interest rates have an effect on corporate investment in theory as expected, (ii) On the other hand, this suggests that quantitative easing has a limited net negative effect on corporate investment by having both a positive effect through the real economy and a negative effect through changing the bank's portfolio, (iii) However, if quantitative easing lowers the real interest rate, there is an effect on the expected inflation rate, (iv) As in the secular stagnation hypothesis which was proposed by Summers (2014), it seem likely that a relatively lower policy interest rate under declining natural interest rate circumstances is required. Thus, judging its effects cautiously, quantitative easing should be restrained as much as possible from the perspective of its cost. Furthermore, it is important for the government to improve productivity through structural reforms such as deregulation.