Exiting from QE

68 Pages Posted: 3 Mar 2014

See all articles by Fumio Hayashi

Fumio Hayashi

National Graduate Institute for Policy Studies

Junko Koeda

Waseda University - Graduate School of Economics; Waseda University - School of Political Science and Economics

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Date Written: February 2014

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.

Suggested Citation

Hayashi, Fumio and Koeda, Junko, Exiting from QE (February 2014). NBER Working Paper No. w19938. Available at SSRN: https://ssrn.com/abstract=2403662

Fumio Hayashi (Contact Author)

National Graduate Institute for Policy Studies ( email )

Roppongi 7-22-1
Minato-ku
Tokyo, 106-0032
Japan

HOME PAGE: http://https://sites.google.com/site/fumiohayashi/home

Junko Koeda

Waseda University - Graduate School of Economics ( email )

1-6-1 Nishi-waseda, Shinjuku-ku
Tokyo
Japan

Waseda University - School of Political Science and Economics ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050, Tokyo 169-8050
Japan

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