Theoretical Foundations for Quantitative Easing

Sohei Kaihatsu, Koichiro Kamada and Mitsuru Katagiri
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Mitsuru Katagiri: Deputy Director and Economist, Research and Statistics Department, Bank of Japan (E-mail: mitsuru.katagiri@boj.or.jp)

No 16-E-04, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: This paper presents theoretical foundations for quantitative easing (QE). Since the late 2000s, with no room for lowering policy interest rates, central banks in the major advanced economies have adopted various unconventional monetary policies. QE is one of those unconventional policies and has so far achieved visible results in practice. However, our theoretical understanding of how QE achieves these results remains incomplete. The purpose of this paper is to introduce an inflation-sensitive money provision rule and show theoretically how QE helps an economy escape from a liquidity trap.

Keywords: Liquidity trap; Quantitative easing; Monetary policy rule (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:16-e-04

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