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Size and Composition of the Central Bank Balance Sheet: Revisiting Japanfs Experience of the Quantitative Easing Policy

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Author Info

  • Shigenori Shiratsuka

    (Bank of Japan (E-mail: shigenori.shiratsuka@boj.or.jp))

Abstract

This paper reexamines Japanfs experience of the quantitative easing policy (QEP) in light of the policy responses against the recent financial and economic crisis. Central banks use various unconventional measures in the range of financial assets being purchased and in the scale of such purchases. As the scope of such unconventional measures expands, it is often emphasized that the U.S. Federal Reserve policy reactions focus more on the asset side of its balance sheet, the so- called credit easing. By contrast, the Bank of Japanfs QEP from 2001 to 2006 set a target for the current account balances, on the liability side of its balance sheet. It is crucial to understand that central banks combine the two elements of their balance sheets, size and composition, to enhance the overall effects of unconventional policy measures, given constraints on policy implementation.

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File URL: http://www.imes.boj.or.jp/research/papers/english/me28-6.pdf
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Bibliographic Info

Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

Volume (Year): 28 (2010)
Issue (Month): (November)
Pages: 79-106

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Handle: RePEc:ime:imemes:v:28:y:2010:p:79-106

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Keywords: Quantitative easing; Credit easing; Unconventional monetary policy; Central bank balance sheet;

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References

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  1. Johannes C. Stroebel & John B. Taylor, 2009. "Estimated Impact of the Fed’s Mortgage-Backed Securities Purchase Program," NBER Working Papers 15626, National Bureau of Economic Research, Inc.
  2. Claudio Borio & Piti Disyatat, 2010. "Unconventional Monetary Policies: An Appraisal," Manchester School, University of Manchester, vol. 78(s1), pages 53-89, 09.
  3. Alan Auerbach & Maurice Obstfeld, 2003. "The case for open-market purchases in a liquidity trap," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  4. Jung, Taehun & Teranishi, Yuki & Watanabe, Tsutomu, 2005. "Optimal Monetary Policy at the Zero-Interest-Rate Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 813-35, October.
  5. Robert N McCauley & Kazuo Ueda, 2009. "Government debt management at low interest rates," BIS Quarterly Review, Bank for International Settlements, June.
  6. Saito, Makoto & Shiratsuka, Shigenori, 2001. "Financial Crises As the Failure of Arbitrage: Implications for Monetary Policy," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 239-270, February.
  7. David Reifschneider & John C. Williams, 1999. "Three lessons for monetary policy in a low inflation era," Finance and Economics Discussion Series 1999-44, Board of Governors of the Federal Reserve System (U.S.).
  8. Fujiki, Hiroshi & Okina, Kunio & Shiratsuka, Shigenori, 2001. "Monetary Policy under Zero Interest Rate: Viewpoints of Central Bank Economists," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(1), pages 89-130, February.
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  10. Fujiki, Hiroshi & Shiratsuka, Shigenori, 2002. "Policy Duration Effect under the Zero Interest Rate Policy in 1999-2000: Evidence from Japan's Money Market Data," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(1), pages 1-31, January.
  11. Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2010. "Large-scale asset purchases by the Federal Reserve: did they work?," Staff Reports 441, Federal Reserve Bank of New York.
  12. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
  13. Takatoshi Ito & Frederic S. Mishkin, 2004. "Two Decades of Japanese Monetary Policy and the Deflation Problem," NBER Working Papers 10878, National Bureau of Economic Research, Inc.
  14. Okina, Kunio & Shiratsuka, Shigenori, 2004. "Policy commitment and expectation formation: Japan's experience under zero interest rates," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 75-100, March.
  15. Naohiko Baba & Motoharu Nakashima & Yousuke Shigemi & Kazuo Ueda, 2005. "The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market," CIRJE F-Series CIRJE-F-374, CIRJE, Faculty of Economics, University of Tokyo.
  16. Ben S. Bernanke & Vincent R. Reinhart, 2004. "Conducting Monetary Policy at Very Low Short-Term Interest Rates," American Economic Review, American Economic Association, vol. 94(2), pages 85-90, May.
  17. repec:fip:fedfsp:y:2009:i:jan4 is not listed on IDEAS
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Citations

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Cited by:
  1. Andrew Filardo & Hans Genberg, 2010. "Monetary Policy Strategies in the Asia and Pacific Region: What Way Forward?," Working Papers id:3139, eSocialSciences.
  2. Vasco Cúrdia & Michael Woodford, 2010. "The central-bank balance sheet as an instrument of monetary policy," Staff Reports 463, Federal Reserve Bank of New York.
  3. Richard G. Anderson & Charles S. Gascon & Yang Liu, 2010. "Doubling your monetary base and surviving: some international experience," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 481-506.
  4. Michele Lenza & Huw Pill & Lucrezia Reichlin, 2010. "Monetary policy in exceptional times," Economic Policy, CEPR & CES & MSH, vol. 25, pages 295-339, 04.
  5. Benjamin Friedman & Kenneth Kuttner, 2010. "Implementation of Monetary Policy: How Do Central Banks Set Interest Rates?," Department of Economics Working Papers 2010-03, Department of Economics, Williams College.
  6. Uwe Vollmer & Ralf Bebenroth, 2012. "The Financial Crisis in Japan: Causes and Policy Reactions by the Bank of Japan," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 9(1), pages 51-77, April.
  7. N. Cordemans & S. Ide, 2012. "Monetary policy in the United States and the euro area during the crisis," Economic Review, National Bank of Belgium, issue I, pages 39-63, June.
  8. Michael A. S. Joyce & Ana Lasaosa & Ibrahim Stevens & Matthew Tong, 2011. "The Financial Market Impact of Quantitative Easing in the United Kingdom," International Journal of Central Banking, International Journal of Central Banking, vol. 7(3), pages 113-161, September.
  9. Michal Franta, 2011. "Identification of Monetary Policy Shocks in Japan Using Sign Restrictions within the TVP-VAR Framework," IMES Discussion Paper Series 11-E-13, Institute for Monetary and Economic Studies, Bank of Japan.
  10. Adam S. Posen, 2010. "The Central Banker's Case for Doing More," Policy Briefs PB10-24, Peterson Institute for International Economics.

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