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Negative Interest Rates and Inflation Expectations in Japan

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  • Jens H. E. Christensen
  • Mark M. Spiegel

Abstract

After Japan introduced a negative policy interest rate in 2016, market expectations for inflation over the medium term fell immediately. This can be seen by assessing how prices for Japanese bonds with embedded deflation protection responded to the policy announcement. The reaction stresses the uncertainty surrounding the effectiveness of negative policy rates as expansionary tools when inflation expectations are anchored at low levels. Japan?s experience also illustrates the desirability of taking preemptive steps to avoid the zero interest rate bound.

Suggested Citation

  • Jens H. E. Christensen & Mark M. Spiegel, 2019. "Negative Interest Rates and Inflation Expectations in Japan," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfel:00202
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    Cited by:

    1. David-Pur, Lior & Galil, Koresh & Rosenboim, Mosi, 2020. "To decrease or not to decrease: The impact of zero and negative interest rates on investment decisions," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 87(C).
    2. Peña, Guillermo, 2021. "A Monetary Policy Rule using Gravity Models," MPRA Paper 105967, University Library of Munich, Germany.
    3. Lau, Wee-Yeap & Yip, Tien-Ming, 2020. "How do monetary transmission channels influence inflation in the short and long run? Evidence from the QQE regime in Japan," The Journal of Economic Asymmetries, Elsevier, vol. 21(C).

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