Managing the Exit: Lessons from Japan's Reversal of Unconventional Monetary Policy
In responding to the global crisis, central banks in several advanced economies ventured beyond traditional monetary policy. A variety of unorthodox measures, including purchases of public and private assets, have significantly enlarged their balance sheets. As recoveries take hold, focus will increasingly shift from countering the Great Recession to orchestrating an exit and returning to a more normal monetary framework. Five years ago, as its economy recovered from a severe financial crisis, Japan attempted just such an exit. This note revisits the Bank of Japanâ€™s experience and draws potential lessons for managing an orderly exit today, with a focus on technical aspects, practicalities, and communication strategies. While the nature of the assets acquired during the present crisis could pose additional complications, parts of Japanâ€™s arsenalâ€”communication, flexibility, a sufficient set of policy tools and a strategy for using them, safeguards against potential losses, the revival of risk appetite through decisive restructuring of balance sheets, and refinements to the monetary framework upon exitâ€”also could be important this time around.
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- Vladimir Klyuev & Phil De Imus & Krishna Srinivasan, 2009. "Unconventional Choices for Unconventional Times Credit and Quantitative Easing in Advanced Economies," IMF Staff Position Notes 2009/27, International Monetary Fund.
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