Exiting from QE. Fumio Hayashi and Junko Koeda. for presentation at SF Fed Conference. March 28, 2014

Transcription

1 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 1 / 29 Exiting from QE Fumio Hayashi an Junko Koa for prsntation at SF F Confrnc March 28, 214

2 To gt start... h^ : Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 2 / 29

3 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 3 / 29 What This Papr Dos Stuy th ffct of QE on macro variabls (inflation an GDP) on Japans ata using SVAR (structural VAR) Japan has, by our count, 13 QE months (as of Dc. 212) Inclus actual lift-off. Uniqu in two rspcts: Obsrvabl an nognous rgims (unlik in th hin-stat Markov switching mol) IR (impuls rspons) to rgim changs.

4 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 4 / 29 Plan of Talk Intifying th Rgim Th Mol Estimation Rsults IR (impuls rspons) an Countr-factual Analyss Conclusions about BOJ s Zro-Rat/QE Policy

5 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 5 / 29 Thr QE Splls Z (zro-rat rgim) if r (th policy rat) <.5% (5 basis points). P (normal rgim) othrwis. Z = QE bcaus xcss rsrvs > whn Z. Prios of Z (Zro-Rat/QE) Rgim QE1: March July 2 QE2: March 21 - Jun 26 QE3: Dcmbr 28 to at Agrs with BOJ annoucmnts. For xampl, July 14, 26:... th BOJ ci... to chang th guilin for mony markt oprations... Th BOJ will ncourag th uncollatraliz ovrnight rat to rmain at aroun.25 prcnt.

6 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 6 / 29 Policy Rat (r) in Japan, prcnt pr yar Jan 9 Jan 95 Jan Jan 5 Jan 1

7 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 7 / 29 Th Exit Conition (to rpat) Prios of Zro-Rat/QE Rgim QE1: March July 2 QE2: March 21 - Jun 26 QE3: Dcmbr 28 to at During QE s, BOJ ma th inflation commitmnt. For xampl Sptmbr 21, 1999: Th BOJ... is xplicitly committ to continu this policy [th zro-rat policy] until flationary concrns subsi.

8 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 8 / 29 Th Mol, stp 1 of 4: a txtbook block-rcursiv SVAR Point of partur: txtbook 3-variabl SVAR (s Stock an Watson, J. of Econ. Prspctivs, 21) (p, x, r), p = inflation rat, x = output gap, r = policy rat. Th first two quations ar ruc forms in (p, x). Th thir quation is th Taylor rul, rlating r to contmporanous (p, x). Taylor rul: with π t 1 12 (p t + + p t 11 ), r t = ρ r rt + (1 ρ r )r t 1 + σ r v rt, rt αr + β r (1 2) [ π t x t ] }{{} sir Taylor rat, v rt N (, 1). Th inflation rat in th Taylor rul is th yar-on-yar (12-month) inflation rat π.

9 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 9 / 29 Th Mol, stp 2 of 4: A th Zro Lowr Boun Impos th lowr boun: r t = max [ ρ r rt + (1 ρ r )r t 1 + σ r v }{{ rt, ], v } rt N (, 1). shaow Taylor rat Equivalntly, shaow Taylor rat if s t = P, r t = if s t = Z. P if shaow Taylor rat >, s t = Z othrwis. Not: Th rgim st is nognous. st = Z if an only if r t = (th conomtrician osn t hav to obsrv th shaow Taylor rat).

10 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 1 / 29 Th Mol, stp 3 of 4: Introuc Exit Conition If s t 1 = Z, P if shaow Taylor rat > an π t > π + σ π v πt, }{{} s t = targt inflation rat Z othrwis. If s t 1 = P, as bfor, i.., P if shaow Taylor rat >, s t = Z othrwis. (rminr) π t 1 12 (p t + + p t 11 ), shaow Taylor rat = ρ r rt + (1 ρ r )r t 1 + σ r v rt, rt αr + β r (1 2) [ π t x t ] }{{} sir Taylor rat.

11 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 11 / 29 Th Mol, stp 4 of 4: A m A m to (p, x, r). if s t = P, m t = max [ m st, ], v mt N (, 1) if s t = Z, whr m st α s + β s [ π t x t ] + γ s m t 1 + σ s v st, (rminr) p monthly inflation rat, π t 1 12 (p t + + p t 11 ), x output ( gap, m log actual rsrvs rquir rsrvs ).

12 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 12 / 29 Plan of Talk Intifying th Rgim Th Mol Estimation Rsults IR (impuls rspons) an Countr-factual Analyss Conclusions about BOJ s Zro-Rat/QE Policy

13 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 13 / 29 Estimation: Th Monthly Data p (monthly CPI inflation rat) π (12-month inflation rat) m (xcss rsrv rat): m t 1 log ( actual rsrvst rquir rsrvs t ). r (policy rat): collatraliz ovrnight intrbank rat. x (GDP gap): monthly intrpolation of official quartrly stimat.

14 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 14 / Month Inflation Rat (π), prcnt pr yar Jan 9 Jan 95 Jan Jan 5 Jan 1

15 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 15 / 29 GDP, log actual GDP potntial log GDP Jan 9 Jan 95 Jan Jan 5 Jan 1

16 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 16 / 29 Estimation: Th Equations bivariat (p, x) ruc form: allow to shift btwn (lagg) P (normal rgim) an (lagg) Z (zro-rat/qe rgim) by Lucas. Taylor rul: stimat on P + Z, rgim nognity takn into account. Excss rsrv supply quation: on Z = {QE1, QE2, QE3}, but QE1 ropp bcaus QE1 looks iffrnt.

17 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 17 / 29 Estimation: (p, x) Ruc Form (t valu in brackts) sampl prio is January Dcmbr 212 subsampl P (s t 1 = P, sampl siz = 123) p. var. const. p t 1 x t 1 r t 1 m t 1 R 2 p t.23 [.9] x t.2 [ 1.4].1 [1.1]. [.1].14 [1.7].93 [21].39 [3.4].2 [.3] subsampl Z (s t 1 = QE2+QE3, sampl siz = 112).19.8 p. var. const. p t 1 x t 1 r t 1 m t 1 R 2 p t.15 [.3] x t 1.21 [ 3.3].22 [2.4].2 [.3].16 [1.8].77 [14].2 [.1].52 [2.6].11.75

18 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 18 / 29 Things to Not about Estimat Ruc Form subsampl s t 1 = P: lagg r cofficint in p t quation positiv an significant. subsampl s t 1 = Z (QE2+QE3): lagg m cofficint in pt an x t quations positiv. Intrcpts lowr for Z than for P.

19 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 19 / 29 Plan of Talk Intifying th Rgim Th Mol Estimation Rsults IR (impuls rspons) an Countr-factual Analyss Conclusions about BOJ s Zro-Rat/QE Policy

20 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 2 / 29 m-ir an r-ir m-ir (IR to a chang in m): E ( y t+k s t = Z, (p t, x t,, m t + δ m ),... ) }{{} (p t, x t, r t, m t ) in altrnativ history E ( y t+k s t = Z, (p t, x t,, m t ),... ), y = p, x, r, m. }{{} (p t, x t, r t, m t) in baslin history r-ir (IR to a chang in r): ( E t yt+k s t = P, (p t, x t, r t + δ r, ),... ) }{{} (p t, x t, r t, m t ) in altrnativ history ( E t yt+k s t = P, (p t, x t, r t, ),... ), y = p, x, r, m. }{{} (p t, x t, r t, m t ) in baslin history Aaptation of GRT (Gallant-Rossi-Tauchn, Economtrica, 1993) IR.

21 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 21 / 29 m-ir, Fbruary 24.5 Monthly Inflation (p) 1.5 Output Gap (x) 1 % annual rat % Policy Rat (r) 1 Excss Rsrv Rat (m) % annual rat.5 %

22 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 22 / 29 Focus on Exiting from QE2 (March 21 - Jun 26) Wining-own of QE2, March to August 26: March April May Jun July August rgim (P for normal, Z for Z Z Z Z P P zro-rat/qe) ratio of actual to rquir rsrvs m, log of th abov ratio (%) r, th policy rat (% pr yar) π, yar-on-yar inflation rat (%) x, output gap (%) shaow Taylor rat (% pr yar)

23 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 23 / 29 IR with Rgim Chang E ( y t+k s t = Z, (p t, x t,, mt ),... ) }{{} (p t, x t, r t, m t) in altrnativ history E ( y t+k s t = P, (p t, x t, r t, ),... ) }{{} (p t, x t, r t, m t) in baslin history m t th m to b xpct givn history up to (p t, x t ). Can b calculat from th stimat xcss rsrv quation. St t = July 26 (BOJ xit from QE2 in July 26).

24 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 24 / 29 If BOJ han t xit in July Monthly Inflation (p) 1.5 Output Gap (x) 1 % annual rat % Policy Rat (r) 1 Excss Rsrv Rat (m) % annual rat.5 %

25 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 25 / 29 IR with Rgim Chang, in opposit irction E ( y t+k s t = P, (p t, x t,, ),... ) }{{} (p t, x t, r t, m t) in altrnativ history E ( y t+k s t = Z, (p t, x t,, m t ),... ) }{{} (p t, x t, r t, m t) in baslin history Hr, m t in baslin is th actual m.

26 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 26 / 29 If BOJ ha xit on month arlir, in Jun Monthly Inflation (p) 1.5 Output Gap (x) 1 % annual rat % Policy Rat (r) 1 Excss Rsrv Rat (m) % annual rat.5 %

27 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 27 / 29 If BOJ ha xit in April Monthly Inflation (p) 1.5 Output Gap (x) 1 % annual rat % Policy Rat (r) 1 Excss Rsrv Rat (m) % annual rat.5 %

28 Conclusions about BOJ s Zro-Rat/QE Policy Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 28 / 29 Incrass in rsrvs unr QE rais both inflation an output. Exiting from QE2 on July 26 was xpansionary. Bttr to hav n QE2 arlir, in April 26 or May 26, vn though th ratio of actual to rquir rsrvs was as high as Cavats: Th pric puzzl Wining-own taks tim.

29 Fumio Hayashi an Junko Koa Exiting from QE March 28, 214, 29 / 29 r-ir, January Monthly Inflation (p) 1.5 Output Gap (x) 1 % annual rat % Policy Rat (r) 1 Excss Rsrv Rat (m) % annual rat.5 %