entral banks typically conduct monetary policy through control of short-term nominal interest rates that can potentially affect the economy through a variety of channels. Because inflation expectations do not immediately react one for one to changes in nominal interest rates, central banks can also control real interest rates, at least over the short to medium term. The typical assumption is that monetary policy changes real (inflation-adjusted) short-term rates to influence economic decisions through their effect on other asset prices. That is, real interest rates will change asset prices in such a way as to change the willingness of banks to lend, firms to invest, or individuals to consume or invest in housing. Thus, a change in short-term real interest rates potentially influences the level of output and employment. Because people can always hold currency instead of depositing it in a bank, short-term nominal interest rates cannot go (much) below zero, which limits the effectiveness of conventional monetary policy. 1 Concerns about the consequences of the zero bound for interest rates date at least to Keynes (1936), and many observers have believed that central banks are helpless when short-term rates are near the zero bound. Many others, however, have argued that central banks can influence prices and output even when short-term rates are near their zero floor by increasing liquidity, particularly by purchasing long-term assets. For example, Mishkin (1996) This article describes the circumstances of and motivations for the quantitative easing programs of the Federal Reserve, Bank of England, European Central Bank, and Bank of Japan during the recent financial crisis and recovery. The programs initially attempted to alleviate financial market distress, but this purpose soon broadened to include achieving inflation targets, stimulating the real economy, and containing the European sovereign debt crisis. The European Central Bank and Bank of Japan focused their programs on direct lending to banks-reflecting the bank-centric structure of their financial systemswhile the Federal Reserve and the Bank of England expanded their respective monetary bases by purchasing bonds. (JEL E51, E58, E61, G12)

Significant store-of-value demand for housing suggests a bubble that could burst, especially when both the household income growth rate and the savings rate start to decline and capital controls in China start to relax.

Since the 1970s, monetary policy has been the primary macroeconomic stabilization instrument. In light of this fact, many researchers have studied how monetary policy affects asset prices, consumer prices, output, and employment to improve such policy. This large literature has used two main methods to study the effect of monetary shocks on macroeconomic variables: vector autoregressions (VARs) and studies of high-frequency monetary shocks on asset prices. 1 VARs offer the advantage of directly studying the effects of monetary policy shocks on key variables-prices, output, and employment-rather than indirectly studying them through their effects on asset prices (see Litterman and

Characterizing asset price volatility is an important goal for financial economists. The literature has shown that variables that proxy for the information arrival process can help explain and/or forecast volatility. Unfortunately, however, obtaining good measures of volume and/or order flow is expensive or difficult in decentralized markets such as foreign exchange. We investigate the extent that Japanese capital flows, which are released weekly, reflect information arrival that improves foreign exchange and equity volatility forecasts. We find that capital flows can help explain transitory shocks to generalized autoregressive conditionally heteroskedastic volatility.

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