During 2001 through 2006, the Bank of Japan (BOJ) adopted "quantitative monetary easing". Although zero interest rates seem to cause the "liquidity trap" in (2001,2006), the growth rate of GDP can be seen to increase gradually. We shall show empirical studies such that there is a transmission path where the increased "Reserve at the BOJ" makes the money turned to the stock market, and hence GDP is increased out of the "liquidity trap". The principal line of attack is to decompose money into precautionary money demand and transaction one. Assuming that precautionary money demand is a function of GDP and fluctuations due to business cycle, we can obtain a new estimation result of precautionary money demand. Defining "adjusted money=m2cd-precautionary demand", we can show a transmission path such that "Reserve at the BOJ" → adjusted money → stock prices → GDP. Six variables of (adjusted money, stock, exchange rate, interest rate, price, GDP) are combined in a macro money system.

In 2001, the Bank of Japan (BOJ) adopted "quantitative monetary easing". Since short term interest rates became almost zero, the operating target of monetary policy was changed from interest rate to the monetary base, where monetary base is defined as the sum of "Cash" and "Reserve at the BOJ". Honda et al [1] showed that "Reserve at the BOJ" in (2001,2006) is effective to the economy through a transmission path in a stock market, where impulse responses in VAR model are used in monthly data of Japan. Decomposing money into transaction demand and precautionary one, and estimating precautionary one, Morita and Miyagawa [2] tried to show that increasing "Reserve at the BOJ" makes GDP increased through the stock market in quarterly data. In this paper, the method of estimating precautionary demand in Japan is extensively improved and applied to the case of USA. Using precautionary demand estimated in the whole interval (1980m01, 2012m02), the quantitative easing at Federal Reserve Board(FRB) is shown to be effective during the period (2006m06, 2010m02).

This paper investigates the effect of "quantitative easing monetary policy (QEMP)" which the Bank of Japan (BOJ) adopted from March 2001 through March 2006, by changing operating target for money market from interest rate to the monetary base that is defined as the sum of "Cash" and "Reserve Deposit at the BOJ". The paper confirms that the monetary policy has contributed to the recovery of the prolonged deflation. First we comparatively investigate economic activities in the usual economy period of (1981,1998) and in the zero interest rate period of (1999,2006), where vector autoregressive (VAR) model of (call rate, exchange rate, stock, nominal GDP, price) is estimated with "call rate" replaced by "Reserve" in the latter period. A monetary easing policy is effective through transmission path of stock market in both periods. Next we decompose money stock into transaction money and precautionary money to evaluate the transmission mechanism of the effect of reserves on the real economy by taking into account the financial anxiety. We have found a quantitative easing shock firstly increase "precautionary money" and secondly raise "Tankan", which dispel the anxiety, and finally attain to "transaction money" and output. * * * , * * and * denote significance levels of 1%, 5% and 10% respectively. call and ln(boj dpst) are tested in (1981q1,1998q4) and (1999q1,2007q4) respectively, while other variables are in (1981q1,2007q4).

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