Monetary Base Controllability after an Exit from Quantitative Easing

Atsushi Tanaka ()
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Atsushi Tanaka: School of Economics, Kwansei Gakuin University

No 181, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: This study examines the problem that a central bank may face after exiting a monetary quantitative easing policy. It develops a simple dynamic optimization model of a central bank, which finds that if the bank needs to absorb a substantial amount of excess reserves when exiting, the monetary base may become uncontrollable. In this case, the bank has no option but to increase the monetary base by more than the target amount, which leads to an undesirable money supply expansion and, ultimately, to inflation pressures. The model shows the condition when a central bank faces such a challenging situation.

Keywords: central bank; monetary base; quantitative easing; exit strategy; solvency; financial strength (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2018-05, Revised 2018-07
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:181

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