Bank announces new program of quantitative easing

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The Japanese central bank announces a new program of ‘quantitative easing’, which involves increasing the growth rate of the Japanese money supply by an additional 5% per year, indefinitely. Assume prior to the announcement that both the Japanese and US money supplies had not been growing, and goods prices were stable (there was neither inflation or deflation in the US or Japan). What is the likely long-run effect of this new Japanese policy on Japanese nominal interest rates, and the exchange rate between the ¥and $?

Reference no: EM131597197

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