NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Junko Koeda

School of Political Science and Economics
1-6-1 Nishiwaseda Shinjuku-ku
Waseda University
Tokyo, 169-8050
JAPAN

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NBER Working Papers and Publications

February 2014Exiting from QE
with Fumio Hayashi: w19938
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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