Policy Multipliers in Japan Under QQE

June 7, 2024

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Sam Ouliaris, and Celine Rochon. Policy Multipliers in Japan Under QQE, (USA: International Monetary Fund, 2024) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: Central bank balance sheet, Central Banks, Expenditure, Financial services, Public debt, Public financial management (PFM), Real interest rates, Tax expenditures

Keywords: Central bank balance sheet, Debt multiplier, Effectiveness of quantitative easing, Fiscal multipliers, Policy multiplier, QQE multiplier, Real interest rates, Structural VAR, Tax expenditures, Tax multiplier

Publication Details

Pages:

14
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/113
Stock No:

WPIEA2024113
ISBN:

9798400279003
ISSN:

1018-5941

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