IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v234y2024ics0165176523004974.html
   My bibliography  Save this article

Exiting from quantitative easing in an era of large government debt: Inflation or default?

Author

Listed:
  • Niwa, Hidekazu

Abstract

Japanese government bonds have accumulated during the last decades, while the Bank of Japan has purchased government bonds under the Quantitative and Qualitative Monetary Easing. This note reconsiders a relationship between inflation stability and a government bond default by using a simple model in which the fiscal authority: (ⅰ) commits not to making fiscal adjustments needed to stabilize government debt, (ⅱ) commits not to providing financial support for the central bank that incurs losses on its balance sheet, and (ⅲ) can partially default on government bonds. We show that the central bank that engages in large-scale purchases of long-term government bonds when the zero lower bound (ZLB) binds cannot achieve its inflation target after the ZLB is no longer binding.

Suggested Citation

  • Niwa, Hidekazu, 2024. "Exiting from quantitative easing in an era of large government debt: Inflation or default?," Economics Letters, Elsevier, vol. 234(C).
    • Handle: RePEc:eee:ecolet:v:234:y:2024:i:c:s0165176523004974
    DOI: 10.1016/j.econlet.2023.111471
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165176523004974
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econlet.2023.111471?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:234:y:2024:i:c:s0165176523004974. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.