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The Effects of QQE on Long-run Inflation Expectations in Japan

Mototsugu Shintani and Naoto Soma
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Naoto Soma: Department of Economics, Yokohama National University

No CARF-F-494, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This paper investigates whether a series of unconventional monetary policies conducted by the Bank of Japan in 2013 contributed to an increase in long-run inflation expectations, which had been below 0 percent. Using a panel dataset of professional forecasts, we estimate the dynamic Nelson-Siegel model and extract long-run inflation expectations as a common factor. We find that the introduction of Quantitative and Qualitative Monetary Easing (QQE) in April 2013, rather than raising the inflation target from 1 percent to 2 percent in January 2013, significantly increased long-run inflation expectations in Japan. In addition to this outcome, we find that the correlation between short-run and long-run expectations has been reduced since the introduction of QQE. Overall, our results suggest that inflation expectations have been "re-anchored" to the level around 1 percent since the introduction of QQE, while the level is still short of the 2 percent target.

Pages: 43
Date: 2020-10
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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