Assessing Potential Inflation Consequences of QE after Financial Crises
25 Pages Posted: 27 Nov 2012
Date Written: November 26, 2012
Financial crises have been followed by different inflation paths which are related to monetary policy and money creation by the banking sector during those crises. Accounting for equilibrium changes and non-linearity issues, the empirical relationship between money and subsequent inflation developments has remained stable and similar in crisis and normal times. This analysis can explain why the financial crisis in Argentina in the early 2000s was followed by increasing inflation, whereas Japan experienced deflation in the 1990s and 2000s despite quantitative easing. Current quantitative easing policies should lead to increasing and persistent inflation over the next years.
Keywords: Financial crises, inflation, monetary aggregates, quantitative easing
JEL Classification: E52, E58, E41
Suggested Citation: Suggested Citation