A Theory of Quantitative Easing Policy and Negative Interest Policy Based on the Japanese Experience
DOI:
https://doi.org/10.6000/1929-7092.2016.05.20Keywords:
Quantitative easing monetary policy, negative interest policy, AbenomicsAbstract
Using a two-period overlapping-generations model, I elucidate how quantitative easing policy and negative interest policy affect an economy based on the Japanese experience under the Abe cabinet. Quantitative easing policy forces a huge amount of money hoarding. Accordingly, the rate of return for money is required to rise. This implies that disinflation and/or deflation are accelerated in Japan, which is in line with reality. On the other hand, quantitative easing policy stimulates the aggregate demand, which brings about a mild recovery in business. The business upturn tightens the foreign market because of an increase in imports and causes the home currency to depreciate.
Negative interest policy implies there is a tax levied on money hoarding. Hence, as longas the government expenditure is kept constant, money circulating in an economy decreases, thereby discouraging business. Such a downturn reduces aggregate income and imports. This induces excess supply of foreign exchange. Consequently, the exchange rate appreciates to equilibrate the market.
These characteristics of the business cycle in conjunction with changes in the attitude of the monetary authority are entirely consistent with the current Japanese experience under Abenomics.References
http://dx.doi.org/10.2307/1925577
Otaki, Masayuki. 2012. “A Keynesian Model of a Small Open Economy under a Flexible Exchange Rate.” Theoretical Economics Letters 2:278-82.
http://dx.doi.org/10.4236/tel.2012.23051
Otaki, Masayuki. 2015. Keynesian Economics and Price Theory: Re-orientation of a Theory of Monetary Economy. Springer, Tokyo.
http://dx.doi.org/10.1007/978-4-431-55345-8
Otaki, Masayuki. 2016. Keynes’s General Theory Reconsidered in the Context of the Japanese Economy. Springer-Briefs in Economics, Development Bank of Japan Research Series, Springer, Tokyo.
http://dx.doi.org/10.1007/978-4-431-55915-3
Downloads
Published
How to Cite
Issue
Section
License
Policy for Journals/Articles with Open Access
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are permitted and encouraged to post links to their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work
Policy for Journals / Manuscript with Paid Access
Authors who publish with this journal agree to the following terms:
- Publisher retain copyright .
- Authors are permitted and encouraged to post links to their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work .