Central Bank Balance Sheet Policies and Inflation Expectations

31 Pages Posted: 28 May 2015

See all articles by Jan Willem van den End

Jan Willem van den End

De Nederlandsche Bank

Christiaan Pattipeilohy

De Nederlandsche Bank - Monetary and Economic Policy Department; Vrije Universiteit Amsterdam, School of Business and Economics

Date Written: May 20, 2015

Abstract

We analyse the empirical effects of credit easing and quantitative easing on inflation expectations and exchange rates. Both monetary policy strategies are summarised in measures for composition and size of the central bank balance sheet and included in a VAR model. The empirical results show that changes in balance sheet size had positive effects on inflation expectations in Japan, while the effects where negligible in the euro area. By contrast, an increasing balance sheet size is associated with reduced short-term inflation expectations in the US and UK, pointing at negative signalling effects. Shocks to balance sheet size or composition have no substantial effects on long-term inflation expectations in the euro area, US and UK. An expanding balance sheet size is associated with an appreciation of the US dollar and a depreciation of the euro, pound sterling and Japanese yen.

Keywords: central banks and their policies, monetary policy

JEL Classification: E58, E52

Suggested Citation

van den End, Jan Willem and Pattipeilohy, Christiaan, Central Bank Balance Sheet Policies and Inflation Expectations (May 20, 2015). De Nederlandsche Bank Working Paper No. 473, Available at SSRN: https://ssrn.com/abstract=2611112 or http://dx.doi.org/10.2139/ssrn.2611112

Jan Willem van den End (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Christiaan Pattipeilohy

De Nederlandsche Bank - Monetary and Economic Policy Department ( email )

Westeinde 1
1017 ZN Amsterdam
Netherlands

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

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