東京大学政策評価研究教育センター

CREPEDP-92

Number CREPEDP-92
Publication Date January 2021
Title The Welfare Implications of Massive Money Injection: The Japanese Experience from 2013 to 2020
Author Tsutomu Watanabe
Abstract This paper derives a money demand function that explicitly takes the costs of storing money into account. This function is then used to examine the consequences of the large-scale money injection conducted by the Bank of Japan since April 2013. The main findings are as follows. First, the opportunity cost of holding money calculated using 1-year government bond yields has been negative since the fourth quarter of 2014 and most recently (2020:Q2) was -0.2%. Second, the marginal cost of storing money, which was 0.3% in the most recent quarter, exceeds the marginal utility of money, which was 0.1%. Third, the optimum quantity of money, measured by the ratio of M1 to nominal GDP, is 1.2. In contrast, the actual money-income ratio in the most recent quarter was 1.8. The welfare loss relative to the maximum welfare obtained under the optimum quantity of money in the most recent quarter was 0.2% of nominal GDP. The findings imply that the Bank of Japan needs to reduce M1 by more than 30%, for example through measures that impose a penalty on holding money.
Keywords deflation; quantitative easing; money demand functions; Friedman rule; optimum quantity of money; satiation level of real money balances; money storage costs; ZLB (zero lower bound)
Other information Paper in English (25 pages)