The Power of Quantitative Easing Revisited

33 Pages Posted: 11 Oct 2023

See all articles by Masaki Tanaka

Masaki Tanaka

Washington University in St. Louis

Date Written: September 15, 2023

Abstract

I theoretically investigate the macroeconomic impact of quantitative easing (QE) using a heterogeneous-agent New Keynesian (HANK) model which incorporates the preferred habitat theory. In contrast to existing studies, my simulation supposes a more realistic situation in which the central bank announces the future asset purchase strategy in advance. I find that if the announcement effect is also considered, the power of QE is weaker in the HANK model than in the representative-agent model. Furthermore, excessive extension of QE has a contractionary effect on the economy. Precautionary saving due to idiosyncratic income risk and redistribution resulting from low long-term yield play a key role in these results.

Keywords: Quantitative easing, Unconventional monetary policy, Heterogeneous-agent model

JEL Classification: E44, E52, E58

Suggested Citation

Tanaka, Masaki, The Power of Quantitative Easing Revisited (September 15, 2023). Available at SSRN: https://ssrn.com/abstract=4573472 or http://dx.doi.org/10.2139/ssrn.4573472

Masaki Tanaka (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

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