Verification of Monetary Policy Effect through Corporate Debt: Empirical analysis using Japanese firm-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, in terms of setting a model that takes into account the financial constraints on Tobin's q type capital investment function, the effect of monetary policy on corporate investment is examined using a multi-level analysis on firm-level panel data and macro level data. The following is a summary of this paper's results: (i) Policy interest rates have an effect on corporate investment in theory as expected, (ii) On the other hand, quantitative easing has a limited effect, (iii) However, if quantitative easing lowers the real interest rate, there is an effect on the expected inflation rate, (iv) In the case of a relatively higher debt company and/or a zero-interest-rate policy that was introduced later in 1999, quantitative easing has only a limited stimulus effect on corporate investment through the reduction of debt. Therefore, it is likely that the ripple effects of monetary policy differ depending on firm heterogeneity and differences in nominal interest rates, (v) As in the secular stagnation hypothesis which was proposed by Summers (2014), a lower natural interest rate seems likely to reduce corporate investment demand. 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.