양적완화의성공조건 한국금융학회정책세미나 2016 년 6 월 성태윤연세대학교경제학부

Transcription

1 양적완화의성공조건 한국금융학회정책세미나 2016 년 6 월 성태윤연세대학교경제학부

2 Contents Quantitative Easing (QE) Quantitative Easing (QE) in the United States Japan s lost decades Forward Guidance Korean version of Quantitative Easing

3 Quantitative Easing (QE)

4 u Overview of Quantitative Easing (QE) Ø Quantitative Easing (QE) ü Unconventional monetary policy ü Implemented in Japan from March 2001 to March ü Implemented after Global Financial Crisis in US, UK, Japan, and EU ü Central bank purchases a massive amount of financial assets ü Directly inject money (liquidity) into economy ü Intended to lower long-term interest rates which central bank cannot directly control.

5 u Overview of Quantitative Easing (QE) Ø Quantitative Easing (QE): Why & When? ü Need to boost domestic economy from recession; Fighting against Deflation ü Unstable financial system ü Traditional monetary policy doesn t work due to zero interest rate bound ü Capacity for fiscal expansion is limited

6 u Overview of Quantitative Easing (QE) Ø Quantitative Easing (QE) in developed countries (after GFC) ü United States, United Kingdom, European Central Bank, Japan ü Mixed results United States has ended QE program with improved economic conditions. EU and Japan have been implementing QE program, but didn t achieve economic recovery yet. QE increases monetary base but its impact on M2 and inflation is limited in advanced economies (Sung and Kim, 2016).

7 Quantitative Easing (QE) in the United States

8 u Quantitative Easing (QE) in the United States Ø Quantitative Easing (QE) in the United States ü QE 1: ü QE 2: ü QE 3: ü QE 3 target: Unemployment rate under 6%, Inflation rate above 2.5% ü Fed had purchased a massive amount of MBS, and long-term treasury securities during QE period. ü Fed maintained near-zero policy rates for a while even after QE 3 ended.

9 u Quantitative Easing (QE) in the United States Ø Tapering ü Federal Open Market Committee (FOMC) discussed how to normalize monetary policy as economic conditions improved. ü The discussion itself affected international financial market, especially emerging economies with sustained capital inflows. ü FOMC finally decided to raise federal funds rate in December 2015 based on the improvement of some key economic indicators.

10 Federal Reserve Assets (Billions of U.S. dollars) QE 1 QE 2 QE Source: Federal Reserve Board of Governors MBS Treasury Securities Total Treasury Securities in Federal Reserve Assets (by maturity, billions of U.S. dollars) QE 1 QE 2 QE within 15 days 16 to 90 days 91 days to 1 year over 1 year to 5 years over 5 years to 10 years over 10 years Source: Federal Reserve Board of Governors

11 Money Supply in the United States (2007M1 = 100) 500 QE 1 QE 2 QE Source: Federal Reserve Board of Governors MB M1 M2 Market Yield on US Treasury Securities (%) 6 5 QE 1 QE 2 QE Source: Federal Reserve Board of Governors 3 month 1 year 5 year 10 year

12 U.S. Inflation Rate (%) QE 1 QE 2 QE Source: Economic Statistics System, Bank of Korea 10 Unemployment Rate, Seasonally Adjusted (%) QE 1 QE 2 QE Source: Economic Statistics System, Bank of Korea

13 Japan s Lost Decades

14 u Japan s Lost Decades Ø From 1990s, Japanese economy has been stagnant ü Temporary recovery from 1996 through early 1997 ü Prolonged recession from 1997 Ø Monetary policy of Bank of Japan in response to the recession ü Lower policy rate towards zero (1999) ü Conduct quantitative easing (QE) ( )

15 u Japan s Lost Decades Ø Evaluation of the monetary policy of Bank of Japan ü Zero interest rate policy from 1999 to 2000 failed to obtain market confidence (Ugai, 2007). ü Expansionary monetary policy had been effective, but limited due to near-zero policy rate and deflationary pressure (Bayoumi, 2001). ü QE had certain effect on the financial sector (for example, on long-term yields), but its impact on real sector was quite limited (see, for example, Schenkelberg and Watzka, 2013; Berkmen, 2012). ü QE had positive effect on CPI, but the impact was small (Schenkelberg and Watzka, 2013).

16 u Japan s Lost Decades Ø Evaluation of the monetary policy of Bank of Japan (continued) ü BOJ would have improved economic performance if it had targeted higher inflation rate and reacted more aggressively to output (Leigh, 2010). ü BOJ should make a credible commitment to fight deflation and escape from liquidity trap (Krugman, 1998; Eggertsson and Woodford, 2003; Svensson, 2003). ü The effect of QE mainly came from expectations on interest rates, while it was not sufficient to revive economy (Ugai, 2007).

17 Money Supply in Japan (1999M1 = 100) QE MB M1 M2 MB: Average amount outstanding M1, M2: Stock at the end of the month Source: Bank of Japan (MB), IMF International Financial Statistics (M1, M2)

18 Interest Rate on Japanese Government Bond (%) QE year 3 year 5 year 10 year Source: Ministry of Finance Japan

19 Japan's Nominal GDP (in billions of US dollars) Source: OECD Statistics Japan Inflation Rate (%) 4 3 QE Source: Economic Statistics System, Bank of Korea

20 Forward Guidance

21 u Forward Guidance Ø Similarities between Japan s lost decades and US economy following GFC ü Breakdown of the financial system ü Near-zero policy rate (Traditional monetary policy is no longer effective) ü Unconventional monetary policy (QE)

22 u Forward Guidance Ø Differences between the practice of quantitative easing in Japan (during the lost decades) and the United states ü BOJ had been reluctant to communicate with private sector and failed to change the expectations of private sector. ü Fed actively communicated with public, gave detailed information on economic outlook and its future monetary policy. ü Japan suffered from deflation and prolonged recession, while United States achieved certain level of inflation and economic recovery.

23 u Forward Guidance Ø Forward guidance (Krugman, 1998; Eggertsson and Woodford; 2003, Svensson, 2003; Woodford, 2012) ü Forming expectations about future monetary policy is important. ü Expectations affect economic decisions such as consumption and investment through long-term interest rate even when the short-term interest rate (such as policy rate) hits zero. ü Simply lowering policy rates and increasing monetary base won t alter economic decisions unless people believe that the policy rate will be kept low in the future (and long-run interest rates will fall). ü Establishing confidence in private sector is important.

24 u Forward Guidance Ø Forward guidance (Krugman, 1998; Eggertsson and Woodford; 2003, Svensson, 2003; Woodford, 2012) (continued) ü Central banks optimal policy is, by nature, time-inconsistent. That is, central banks find it desirable to renege on its policy later when the economy is improving. Hence, making a credible commitment is essential. ü Eggertsson and Woodford (2003) proposes history-dependent policy to enhance credibility.

25 u Forward Guidance Ø Three types of forward guidance (Filardo and Hofmann, 2014) Qualitative (ex. QE 1) Calendar-based (ex. QE 2) Threshold-based (ex. QE 3)

26 Korean version of Quantitative Easing

27 u Korean version of Quantitative Easing Ø Korean version of quantitative easing: outline ü Proposed by the ruling party prior to the general election as a measure to boost national economy which has suffered from recession following the global financial crisis; Capital injection (or Funding Providing to government-sponsored financial institutions) ü Includes purchase of bonds issued by Korea Development Bank (KDB) and mortgage-backed securities (MBS

28 u Korean version of Quantitative Easing Ø Issue 1: QE really needed? (Sung, 2016) ü Policy rate is 1.5% at the moment, hence there s still room for traditional monetary policy measure to boost economy. ü More traditional policy tools including interest rate policies and restructuring industries could be still the better solution. ü Later, QE could be effective in resolving household debt problem as well as corporate debt problem in Korea, both of which are considered as huge challenges for Korean economy.

29 u Korean version of Quantitative Easing Ø Issue 2: QE Insufficient to fight deflation and achieve economic recovery (Sung, 2016) ü Credit rationing rather than QE: Advocates argue that the Bank of Korea (BOK) should direct money into companies in financial distress through KDB. But, if BOK purchases bonds issued by KDB and MBS, then it will lead to downward pressure on the interest rates. Then, BOK should absorb liquidity later to maintain policy rate at 1.5%. (Recall that federal funds rate was near zero, when Fed purchased a large amount of long-term securities and MBS.)

30 u Korean version of Quantitative Easing Ø Issue 2: QE Insufficient to fight deflation and achieve economic recovery (Sung, 2016) (continued) ü As a result, BOK cannot change private sector s expectations about future monetary policy as Fed did (since it s not accompanied by a credible commitment), and hence cannot fight deflation and achieve economic recovery.

31 u Korean version of Quantitative Easing Ø Policy suggestion (Sung, 2016) 1. Further lower policy rate. 2. Inject liquidity into the economy, not a specific sector or companies. 3. Stimulate consumption and investment by lowering long-term interest rates. 4. Use forward guidance to fight deflation and achieve economic recovery.

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33 Hancock, D. and W. Passmore (2011). "Did the Federal Reserve's MBS purchase program lower mortgage rates?" Journal of Monetary Economics 58(5): IMF (2013). Unconventional Monetary Policies - Recent Experience and Prospects. Krugman, P. R. (1998). "It's baaack: Japan's slump and the return of the liquidity trap." Brookings Papers on Economic Activity 1998(2): Leigh, D. (2010). "Monetary policy and the lost decade: Lessons from Japan." Journal of Money, Credit and Banking 42(5): Schenkelberg, H. and S. Watzka (2013). "Real effects of quantitative easing at the zero lower bound: Structural VAR-based evidence from Japan." Journal of International Money and Finance 33: Sung, T. and J.-H. Kim (2016). "Unconventional Monetary Policy, Global Liquidity Circulation, and Inflation Divergence around the World." The Developing Economies 54(1): Svensson, L. E. (2003). "Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others." Journal of Economic Perspectives 17(4): Ugai, H. (2007). "Effects of the quantitative easing policy: A survey of empirical analyses." Monetary and Economic Studies 25(1): Wright, J. H. (2012). "What does Monetary Policy do to Long-term Interest Rates at the Zero Lower Bound?." The Economic Journal 122(564): F447-F466. Woodford, M. (2012). Methods of policy accommodation at the interest-rate lower bound. The Changing Policy Landscape: 2012 Jackson Hole Symposium, Federal Reserve Bank of Kansas City.

34 Data 한국은행경제통계시스템 (Economic Statistics System, Bank of Korea) Bank of Japan Federal Reserve Board of Governors IMF, International Financial Statistics (online) Ministry of Finance Japan OECD Statistics