This seminar by Junko Koeda will examine how central banks of major market economies have recently adopted quantitative easing, allowing excess reserves to build up while maintaining the policy rate at very low levels. A regime-switching structural vector autoregression is developed in which the monetary policy regime, chosen by the central bank responding to economic conditions, is endogenous and observable. The model can incorporate the exit condition for terminating quantitative easing. The model is applied to Japan, which has accumulated about 130 months of QE as of December 2012. Response analysis yields two findings about quantitative easing. First, an increase in reserves raises inflation and output. Second, terminating quantitative easing can be expansionary.