<abstract xmlns="http://www.w3.org/1999/xhtml"><p>This study examines the problem that a central bank may face after exiting a monetary quantitative easing policy. It develops a simple dynamic optimization model of a central bank, which finds that if the bank needs to absorb a substantial amount of excess reserves when exiting, the monetary base may become uncontrollable. In this case, the bank has no option but to increase the monetary base by more than the target amount, which leads to an undesirable money supply expansion and, ultimately, to inflation pressures. The model shows the condition when a central bank faces such a challenging situation.</p></abstract>

This study examines the problem that a central bank may face after exiting a monetary quantitative easing policy. It develops a simple dynamic optimization model of a central bank, which finds that if the bank needs to absorb a substantial amount of excess reserves when exiting, the monetary base may become uncontrollable. In this case, the bank has no option but to increase the monetary base by more than the target amount, which leads to an undesirable money supply expansion and, ultimately, to inflation pressures. The model shows the condition when a central bank faces such a challenging situation.

Monetary Base Controllability after an Exit from Quantitative Easing

Journal of Central Banking Theory and Practice

This work is licensed under the Creative Commons Attribution 4.0 International License.

{"article-title":"Monetary Base Controllability after an Exit from Quantitative Easing"}

This study examines the problem that a central bank may face after exiting a monetary quantitative easing policy. It develops a simple dynamic optimization...

Monetary Base Controllability after an Exit from Quantitative Easing

Published Online: Sep 18, 2020

Page range: 123 - 134

Received: Mar 11, 2019

Accepted: Jun 27, 2019

DOI: https://doi.org/10.2478/jcbtp-2020-0040

Keywords
central bank, monetary base, quantitative easing, exit strategy, solvency

© 2020 Atsushi Tanaka, published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Monetary Base Controllability after an Exit from Quantitative Easing

Published Online: Sep 18, 2020

Page range: 123 - 134

Received: Mar 11, 2019

Accepted: Jun 27, 2019

DOI: https://doi.org/10.2478/jcbtp-2020-0040

Keywordscentral bank, monetary base, quantitative easing, exit strategy, solvency

© 2020 Atsushi Tanaka, published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Keywords
central bank, monetary base, quantitative easing, exit strategy, solvency