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Seoul Journal of Economics - Vol. 33 , No. 4

[ Article ]
Seoul Journal of Economics - Vol. 33, No. 3, pp.355-394
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2020
Received 14 Mar 2020 Revised 23 May 2020 Accepted 25 May 2020

Response of Bank Loans to the Bank of Japan’s Quantitative and Qualitative Easing Policy: A Panel Data Analysis
Etsuro Shioji
Etsuro Shioji, Professor, Department of Economics, Hitotsubashi University, 2-1 Naka, Kunitachi, Tokyo, 186-8601, Japan, Tel: +81-42-5908584 (

Funding Information ▼

JEL Classification: E51, G21


In recent years, many central banks around the world have conducted quantitative easing, namely a massive expansion of their balance sheets. This paper studies commercial banks’ lending behaviors under such a policy regime, using the Japanese data. Since April 2013, the Bank of Japan has executed quantitative easing of an extraordinary magnitude. This is known as the “Quantitative and Qualitative Monetary Easing (QQE)”. During this period, the overall size of bank reserves outstanding has become eight times larger in just six years. Yet aggregate data indicates that bank lending and money stock hardly responded. This seems to indicate that the traditional money creation process has totally collapsed. But is the money multiplier really completely “dead”? This paper utilizes a panel data on balance sheets of Japan’s regional banks to answer this question. The data is semiannual, consisting of observations from March and September between years 2013 and 2019. I study if a bank, which inherited a larger stock of reserves at the end of a period, would tend to expand its loans more aggressively in the subsequent period.

It turns out to be important to divide the entire QQE period into two. During the first half of our sample period, between March 2013 and September 2015, I find no significant response of bank lending to an increased bank reserves. In the second half, between March 2016 and September 2019, a significantly positive response is observed. However, even for the latter period, the coefficients on bank reserves and government bonds turn out to be about the same: this suggests that injection of bank reserves by the central bank through purchases of government bonds, which has been the most dominant form of central bank transactions under the QQE, has not been effective.

Keywords: Unconventional monetary policy, Quantitative easing, Money multiplier, Panel data, Japanese economy


Research for this paper has been funded by the Grant-in-aid for scientific research S-24223003, C-15K03418, A-17H00985 and C-18K01605, and Nomura Foundation. I would like to thank an anonymous referee for many thoughtful comments, which (I believe) have resulted in a major improvement of the paper. I would like to thank the participants at the Fall 2017 Meetings of both the Japanese Economic Association (September 9 at Aoyama Gakuin University) and the Japan Society of Monetary Economics (September 30 at Kagoshima University), especially the discussants Kiyotaka Nakashima and Hitoshi Inoue, for their valuable comments. I am also grateful to the participants at the Seoul Journal of Economics International Symposium “Macroeconomic Policies in Changing Global Economic Environment” (November 6, 2019 at Seoul National University), especially Soyoung Kim and Alessandro Rebucci, for their insightful advice and comments.

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