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Fiscal cost to exit quantitative easing: the case of Japan

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  • Fujiki, Hiroshi
  • Tomura, Hajime

Abstract

This paper simulates the cash flows and balance sheet of the Bank of Japan (BoJ) before and after the end of Quantitative and Qualitative Monetary Easing (QQE) under various scenarios. The simulations show that the BoJ will record significant accounting losses after the end of QQE, because the yields on Japanese government bonds (JGBs) acquired during QQE will be lower than the interest rate on excess reserves after the end of QQE. These losses are fiscal costs for the consolidated Japanese government, as they correspond to increased interest expenses to the public. The extent of the BoJ's accounting losses depends crucially on the duration of QQE and the interest-rate elasticity of banknote demand.

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  • Fujiki, Hiroshi & Tomura, Hajime, 2017. "Fiscal cost to exit quantitative easing: the case of Japan," Japan and the World Economy, Elsevier, vol. 42(C), pages 1-11.
    • Handle: RePEc:eee:japwor:v:42:y:2017:i:c:p:1-11
    DOI: 10.1016/j.japwor.2017.02.003
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    3. Fukuda, Shin-ichi & Soma, Naoto, 2019. "Inflation target and anchor of inflation forecasts in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 52(C), pages 154-170.
    4. Harimaya, Kozo & Jinushi, Toshiki, 2023. "The effects of quantitative easing policy on bank lending: Evidence from Japanese regional banks," Japan and the World Economy, Elsevier, vol. 67(C).
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    6. Atsushi Tanaka, 2020. "Monetary Base Controllability after an Exit from Quantitative Easing," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(3), pages 123-134.
    7. Alberola, Enrique & Cheng, Gong & Consiglio, Andrea & Zenios, Stavros A., 2023. "Unconventional monetary policy and debt sustainability in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 69(C).
    8. Fujiki, Hiroshi, 2020. "Cash demand and financial literacy: A case study using Japanese survey data," Japan and the World Economy, Elsevier, vol. 54(C).
    9. Monetary Affairs Department, 2023. "Central Bank Finances and Monetary Policy Conduct," Bank of Japan Working Paper Series 23-12-12, Bank of Japan.
    10. Atsushi Tanaka, 2021. "Central Bank Capital and Credibility: A Literature Survey," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(2), pages 249-262, June.
    11. Fujiki, Hiroshi & Tomura, Hajime, 2017. "Fiscal cost to exit quantitative easing: the case of Japan," Japan and the World Economy, Elsevier, vol. 42(C), pages 1-11.
    12. Niwa, Hidekazu, 2024. "Exiting from quantitative easing in an era of large government debt: Inflation or default?," Economics Letters, Elsevier, vol. 234(C).
    13. Atsushi Tanaka, 2019. "How Can a Central Bank Exit Quantitative Easing Without Rapidly Shrinking its Balance Sheet?," Discussion Paper Series 196, School of Economics, Kwansei Gakuin University.
    14. Hiroshi FUJIKI & Kiyotaka Nakashima, 2019. "Cash Usage Trends in Japan: Evidence Using Aggregate and Household Survey Data," Working Papers e131, Tokyo Center for Economic Research.
    15. Ilona Skibińska-Fabrowska & Małgorzata Czuchryta & Adrian Żak, 2023. "The relationship between payment inclusion and the demand for cash," Bank i Kredyt, Narodowy Bank Polski, vol. 54(4), pages 365-388.
    16. Atsushi Tanaka, 2020. "Central Bank Capital and Credibility: A Literature Survey," Discussion Paper Series 208, School of Economics, Kwansei Gakuin University, revised May 2020.

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    More about this item

    Keywords

    E52; E58; E61; Quantitative and Qualitative Monetary Easing; Quantitative easing; Fiscal cost; Central bank; Solvency;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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