NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Exiting from QE

Fumio Hayashi, Junko Koeda

NBER Working Paper No. 19938
Issued in February 2014
NBER Program(s):   ME

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. There are two regimes, one of which is QE (quantitative easing). 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 and counter-factual analyses yield two findings about QE. First, an increase in reserves raises inflation and output. Second, terminating QE can be expansionary.

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Document Object Identifier (DOI): 10.3386/w19938

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