Working Paper: NBER ID: w19938
Authors: Fumio Hayashi; Junko Koeda
Abstract: We develop a regime-switching SVAR (structural vector autoregression) in which the monetary policy regime, chosen by the central bank responding to economic conditions, is endogenous and observable. There are two regimes, one of which is QE (quantitative easing). The model can incorporate the exit condition for terminating QE. We then apply the model to Japan, a country that has accumulated, by our count, 130 months of QE as of December 2012. Our impulse response and counter-factual analyses yield two findings about QE. First, an increase in reserves raises inflation and output. Second, terminating QE can be expansionary.
Keywords: Quantitative Easing; Japan; Monetary Policy
JEL Codes: E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in reserves (F31) | higher inflation (E31) |
| increase in reserves (F31) | higher output (E23) |
| terminating QE (E49) | higher output (E23) |
| terminating QE (E49) | higher inflation (E31) |
| zero-rate regime (E43) | higher inflation (E31) |
| zero-rate regime (E43) | higher output (E23) |