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Exiting from QE

Fumio Hayashi and Junko Koeda

No 19938, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2014-02
Note: ME
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