School of Political Science and Economics
1-6-1 Nishiwaseda Shinjuku-ku
Institutional Affiliation: Ministry of Finance, Japan
NBER Working Papers and Publications
|February 2014||Exiting from QE|
with Fumio Hayashi: w19938
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.