IMF Working Papers

Policy Multipliers in Japan Under QQE

Author/Editor:

Sam Ouliaris ; Celine Rochon

Publication Date:

June 7, 2024

Electronic Access:

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Summary:

This paper tests whether Japan's key macro policy multipliers have declined since 2013, the year that Japan introduced Qualitative and Quantitative Easing. We use the augmented Blanchard-Perotti structural VAR model introduced in Ouliaris and Rochon (2021) to study the dynamic effects of shocks in the central bank’s asset holdings, interest rates, and debt levels relative to GDP on economic activity in Japan. We find that both the expenditure and tax multipliers of Japan have fallen, implying that the effectiveness of fiscal policy in Japan declined following the change in monetary policy. Moreover, we find that the efficacy of quantitative easing is small, implying the need for huge interventions to have a significant effect on real GDP, and that the effectiveness of quantitative easing has declined since 2013. We argue that the reduction in policy multipliers can be attributed to the upward trend in the government debt level relative to GDP which, despite historically low interest rates, has increased Japan’s structural deficit, and the likelihood of reduced expenditures and higher taxes going forward.

Series:

Working Paper No. 2024/113

Subject:

Central bank balance sheet Central Banks Econometric analysis Expenditure Financial services Financial statements Fiscal multipliers Fiscal policy Monetary policy Public debt Public financial management (PFM) Real interest rates Structural vector autoregression Tax expenditures Unconventional monetary policies Vector autoregression

Frequency:

regular