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Theoretical Foundations for Quantitative Easing

Author

Listed:
  • Sohei Kaihatsu

    (Director and Senior Economist, Monetary Affairs Department, Bank of Japan (E-mail: souhei.kaihatsu@boj.or.jp))

  • Koichiro Kamada

    (Associate Director-General and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: kouichirou.kamada@boj.or.jp))

  • Mitsuru Katagiri

    (Deputy Director and Economist, Research and Statistics Department, Bank of Japan (E-mail: mitsuru.katagiri@boj.or.jp))

Abstract

This paper presents theoretical foundations for quantitative easing (QE). Since the late 2000s, with no room for lowering policy interest rates, central banks in the major advanced economies have adopted various unconventional monetary policies. QE is one of those unconventional policies and has so far achieved visible results in practice. However, our theoretical understanding of how QE achieves these results remains incomplete. The purpose of this paper is to introduce an inflation-sensitive money provision rule and show theoretically how QE helps an economy escape from a liquidity trap.

Suggested Citation

  • Sohei Kaihatsu & Koichiro Kamada & Mitsuru Katagiri, 2016. "Theoretical Foundations for Quantitative Easing," IMES Discussion Paper Series 16-E-04, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:16-e-04
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    File URL: http://www.imes.boj.or.jp/research/papers/english/16-E-04.pdf
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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

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