The End of One Long Deflation: An Empirical Investigation

Did "Quantitative and Qualitative Monetary Easing (QQE),'' which has been conducted by the Bank of Japan from April 2013, end the long deflation of the Japanese economy? Answering the question, we constructed a linear projection model to estimate Ex-Ante Real interest Rates (EARRs) and Inflation Expectations (IEs) based on Japanese macroeconomic data. In our empirical study, we obtain two major results. The first result shows that we can observe a sharp decline of an EARR and the sudden increase of an IE after March, 2013, which is consistent with the actual core inflation. Second, estimating dummy variables in the model, we find that a structural break occurred in April, 2013. A regime change (regime shift) of Japanese monetary policy occurred in March or April, 2013. They also present that QQE has a strong effect on the Japanese economy and realized the sharp recovery in 2013. We conclude that the regime change of monetary policy end the Japanese long deflation in 2013.