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Assessing Potential Inflation Consequences of QE after Financial Crises

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  • Samuel Reynard

    (Peterson Institute for International Economics)

Abstract

Financial crises have been followed by different inflation paths which are related to monetary policy and money creation by the banking sector during those crises. Accounting for equilibrium changes and non-linearity issues, the empirical relationship between money and subsequent inflation developments has remained stable and similar in crisis and normal times. This analysis can explain why the financial crisis in Argentina in the early 2000s was followed by increasing inflation, whereas Japan experienced deflation in the 1990s and 2000s despite quantitative easing. Current quantitative easing policies should lead to increasing and persistent inflation over the next years.

Suggested Citation

  • Samuel Reynard, 2012. "Assessing Potential Inflation Consequences of QE after Financial Crises," Working Paper Series WP12-22, Peterson Institute for International Economics.
    • Handle: RePEc:iie:wpaper:wp12-22
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    References listed on IDEAS

    as
    1. Reynard, Samuel, 2007. "Maintaining low inflation: Money, interest rates, and policy stance," Journal of Monetary Economics, Elsevier, vol. 54(5), pages 1441-1471, July.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-472, May.
    3. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1.
    4. Nelson, Edward, 2003. "The future of monetary aggregates in monetary policy analysis," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1029-1059, July.
    5. Nathan Balke & Robert J. Gordon, 1986. "Appendix B: Historical Data," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 781-850, National Bureau of Economic Research, Inc.
    6. Dr. Samuel Reynard, 2006. "Money and the Great Disinflation," Working Papers 2006-07, Swiss National Bank.
    7. McCallum, Bennett T., 1990. "Inflation: Theory and evidence," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 18, pages 963-1012, Elsevier.
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    Cited by:

    1. Niall Ferguson & Andreas Schaab & Moritz Schularick, 2015. "Central Bank Balance Sheets: Expansion and Reduction since 1900," CESifo Working Paper Series 5379, CESifo.
    2. Matteo Barigozzi & Antonio M. Conti, 2018. "On the Stability of Euro Area Money Demand and Its Implications for Monetary Policy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 80(4), pages 755-787, August.
    3. R. O. Odenu Iyede & Felix. E. Onah & Cletus. C. Agu, 2018. "A Survey of Studies on Money Demand and Inflation Amidst Banking Crisis," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 2(2), pages 34-54.
    4. Boris Hofmann & Feng Zhu, 2013. "Central bank asset purchases and inflation expectations," BIS Quarterly Review, Bank for International Settlements, March.

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    More about this item

    Keywords

    Financial crises; inflation; monetary aggregates; quantitative easing;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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