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A Tale of Two Velocities

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  • Steve Ambler

    (Département des sciences économiques, ESG UQAM, Canada; C.D. Howe Institute, Canada; The Rimini Centre for Economic Analysis)

Abstract

Quantitative easing in the US has meant a massive increase in the size of the Fed’s balance sheet and the monetary base without a commensurate increase in inflation. Instead, velocity has decreased dramatically. The only comparable episode in recent economic history was Japan’s experiment with quantitative easing in the early 2000s, where inflation remained low or negative and which ended in 2006 when the Bank of Japan reduced the size of its balance sheet to a level compatible with the growth path it was on before quantitative easing. We show that this is precisely what we would expect in a standard New Keynesian model in response to an increase in the money supply that is expected to be temporary.

Suggested Citation

  • Steve Ambler, 2017. "A Tale of Two Velocities," Working Paper series 17-14, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:17-14
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    File URL: http://www.rcea.org/RePEc/pdf/wp17-14.pdf
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    Cited by:

    1. Charles Olivier Mao Takongmo, 2021. "DSGE models, detrending, and the method of moments," Bulletin of Economic Research, Wiley Blackwell, vol. 73(1), pages 67-99, January.

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