A Tale of Two Velocities

Steven Ambler ()

Working Paper series from Rimini Centre for Economic Analysis

Abstract: Quantitative easing in the US has meant a massive increase in the size of the Fed’s balance sheet and the monetary base without a commensurate increase in inflation. Instead, velocity has decreased dramatically. The only comparable episode in recent economic history was Japan’s experiment with quantitative easing in the early 2000s, where inflation remained low or negative and which ended in 2006 when the Bank of Japan reduced the size of its balance sheet to a level compatible with the growth path it was on before quantitative easing. We show that this is precisely what we would expect in a standard New Keynesian model in response to an increase in the money supply that is expected to be temporary.

Date: 2017-07
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:rim:rimwps:17-14

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