Supplementary Paper Series for the "Comprehensive Assessment" (3): Policy Effects since the Introduction of Quantitative and Qualitative Monetary Easing (QQE) -- Assessment Based on Bank of Japan's Large-scale Macroeconomic Model (Q-JEM) --

Three and a half years or so have passed since the Bank of Japan introduced Quantitative and Qualitative Monetary Easing (QQE) in April 2013. This paper presents a simulation exercise based on the Bank of Japan's large-scale macroeconomic model (Q-JEM) to assess the impact of policies since the introduction of QQE on Japan's economic activity and prices. In this exercise, we consider hypothetical scenarios assuming that QQE and subsequent easing measures had not been introduced, and conduct counterfactual simulations to examine how the Japanese economy and prices would have evolved under these scenarios. In this setting, we estimate the policy effects as the difference between the actual data and the counterfactual paths. We use two different starting points for the simulation: the introduction of QQE in Q2 2013, and the quarter before the introduction of QQE, when the Bank introduced its inflation target and markets may have anticipated a major policy change. Moreover, for each of the two different starting points, we consider two different cases in terms of what is regarded as part of the monetary policy shock brought about by QQE and subsequent policy measure. Specifically, in the first case, the monetary policy shock includes only the decline in real interest rates, and changes in exchange rates and stock prices are regarded as consequences of the policy shock only to the extent that they are explained within the model. In the second case, it includes all the changes in exchange rates and stock prices (beyond those predicted by the model). The simulation results indicate that in three out of the four scenarios, the year-on-year rate of change in the CPI (all items less fresh food and energy) would have stayed negative or close to zero percent without the introduction of QQE and subsequent policy measures.