 Unconventional monetary policy and debt sustainability in JapanEnrique Alberola, Gong Cheng, Andrea Consiglio and Stavros Zenios Journal of the Japanese and International Economies, 2023, vol. 69, issue C Abstract: We adapt to the Japanese case a model of stochastic debt sustainability within a monetary policymaking framework. The model incorporates the effects of unconventional monetary policy and its potential unwinding on sovereign debt dynamics. A scenario tree represents stochastic and correlated macroeconomic and fiscal variables, and a coherent risk measure allows to draw probabilistic inferences on sustainability. We calibrate the model to the Quantitative and Qualitative Easing (QQE) that Bank of Japan launched in 2013. Using a retrospective analysis, we find a large favourable effect of the QQE on sovereign debt dynamics. Forward-looking simulations under different exit strategies show that the termination and unwinding of the QQE could raise debt sustainability concerns. A sharp tightening of global financial conditions could have a similar negative impact on debt dynamics, requiring a fiscal adjustment to keep debt sustainable. Keywords: Debt sustainability analysis (DSA); Risk management; Quantitative easing; Yield Curve Control; Unconventional monetary policy; CVaR optimization (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:69:y:2023:i:c:s0889158323000291 DOI: 10.1016/j.jjie.2023.101274 Access Statistics for this article Journal of the Japanese and International Economies is currently edited by Takeo Hoshi More articles in Journal of the Japanese and International Economies from Elsevier |
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