Testing the effectiveness of unconventional monetary policy in Japan and the United States

Unconventional monetary policy (UMP) may make the effective lower bound (ELB) on the short-term interest rate irrelevant. We develop a theoretical model that under[1]pins our empirical test of this ‘irrelevance hypothesis,’ based on the simple idea that under the hypothesis, the short rate can be excluded in any empirical model that ac[1]counts for alternative measures of monetary policy. We test the hypothesis for Japan and the United States using a structural vector autoregressive model with the ELB. We firmly reject the hypothesis but find that UMP has had strong delayed effects.