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A Regime-Switching SVAR Analysis of Quantitative Easing

Author

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  • Fumio Hayashi

    (Hitotsubashi University)

  • Junko Koeda

    (The University of Tokyo)

Abstract

Central banks of major market economies have recently adopted QE (quantitative easing), allowing excess reserves to build up while maintaining the policy rate at very low levels. We develop a regime-switching SVAR (structural vector autoregression) in which the monetary policy regime, chosen by the central bank responding to economic conditions, is endogenous and observable. The model can incorporate the exit condition for terminating QE. We then apply the model to Japan, a country that has accumulated, by our count, 130 months of QE as of December 2012. Our impulse response analysis yields two findings about QE. First, an increase in reserves raises inflation and output. Second, terminating QE is not necessarily deflationary.

Suggested Citation

  • Fumio Hayashi & Junko Koeda, 2013. "A Regime-Switching SVAR Analysis of Quantitative Easing," CARF F-Series CARF-F-322, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    • Handle: RePEc:cfi:fseres:cf322
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    File URL: https://www.carf.e.u-tokyo.ac.jp/old/pdf/workingpaper/fseries/F322.pdf
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    References listed on IDEAS

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    Cited by:

    1. Massimo Guidolin & Alexei G. Orlov & Manuela Pedio, 2014. "Understanding the Impact of Monetary Policy Shocks on the Corporate Bond Market in Good and Bad Times: A Markov Switching Model," BAFFI CAREFIN Working Papers 1623, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    2. Guidolin, Massimo & Orlov, Alexei G. & Pedio, Manuela, 2017. "The impact of monetary policy on corporate bonds under regime shifts," Journal of Banking & Finance, Elsevier, vol. 80(C), pages 176-202.
    3. Dekle, Robert & Hamada, Koichi, 2015. "Japanese monetary policy and international spillovers," Journal of International Money and Finance, Elsevier, vol. 52(C), pages 175-199.
    4. MIYAO Ryuzo & OKIMOTO Tatsuyoshi, 2017. "The Macroeconomic Effects of Japan's Unconventional Monetary Policies," Discussion papers 17065, Research Institute of Economy, Trade and Industry (RIETI).
    5. Ryuzo Miyao & Tatsuyoshi Okimoto, 2020. "Regime shifts in the effects of Japan’s unconventional monetary policies," Manchester School, University of Manchester, vol. 88(6), pages 749-772, December.
    6. McNelis, Paul D. & Yoshino, Naoyuki, 2016. "Finding stability in a time of prolonged crisis: Unconventional policy rules for Japan," Journal of Financial Stability, Elsevier, vol. 27(C), pages 122-136.
    7. Morita, Hiroshi, 2015. "Japanese Fiscal Policy under the Zero Lower Bound of Nominal Interest Rates: Time-Varying Parameters Vector Autoregression," Discussion Paper Series 627, Institute of Economic Research, Hitotsubashi University.

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