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Further Monetary Easing Policies under the Non-negativity Constraints of Nominal Interest Rates: Summary of the Discussion Based on Japan's Experience

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  • Oda, Nobuyuki

    (Bank of Japan)

  • Okina, Kunio

    (Bank of Japan)

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    Abstract

    This paper examines issues surrounding monetary policy under zero interest rates based on one and a half yearfs experience in Japan. After reviewing the market development in Japan, it summarizes the transmission mechanism of monetary policy under zero nominal interest rates, and considers what would be the likely policy options if a central bank were to conduct further monetary easing. Specifically, a more detailed policy announcement is regarded as feasible, less costly, and the less risky option, although additional effects of monetary easing through this measure are relatively limited. On the other hand, introduction of a temporary fixed exchange rate system and a huge increase in the outright purchase of medium- and long-term government bonds can induce relatively large effects, although the uncertainty in the effects as well as the accompanied costs and risks may be very large. In addition, the paper considers the validity of introducing inflation targeting. It summarizes that inflation targeting is not necessarily easy to distinguish from traditional policy management based on an overall consideration. Furthermore, given recent tendencies in Japan, the paper argues that the introduction of inflation targeting in the current situation might impair the conduct of monetary policy in the absence of preconditions for benefiting from its intrinsic merits.

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    File URL: http://www.imes.boj.or.jp/research/papers/english/me19-s1-12.pdf
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    Bibliographic Info

    Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

    Volume (Year): 19 (2001)
    Issue (Month): S1 (February)
    Pages: 323-360

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    Handle: RePEc:ime:imemes:v:19:y:2001:i:s1:p:323-360

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    1. Lars E O Svensson, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Bank of England working papers 56, Bank of England.
    2. John B. Taylor, 1995. "The monetary transmission mechanism: an empirical framework," Working Papers in Applied Economic Theory 95-07, Federal Reserve Bank of San Francisco.
    3. Reinhart, Carmen & Smith, R Todd, 2002. "Temporary controls on capital inflows," MPRA Paper 13863, University Library of Munich, Germany.
    4. Shiller, Robert J, 1979. "The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1190-1219, December.
    5. Allan H. Meltzer, 1995. "Monetary, Credit and (Other) Transmission Processes: A Monetarist Perspective," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 49-72, Fall.
    6. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
    7. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
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    Cited by:
    1. Nobuyuki Oda & Kazuo Ueda, 2005. "The Effects of the Bank of Japan's Zero Interest Rate Commitment and Quantitative Monetary Easing on the Yield Curve: A Macro-Finance Approach (subsequently published in "The Japanese Economic Re," CARF F-Series CARF-F-031, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    2. Takatoshi Ito, 2004. "Inflation Targeting and Japan: Why has the Bank of Japan not Adopted Inflation Targeting?," RBA Annual Conference Volume, in: Christopher Kent & Simon Guttmann (ed.), The Future of Inflation Targeting Reserve Bank of Australia.
    3. Takatoshi Ito & Frederic S. Mishkin, 2006. "Two Decades of Japanese Monetary Policy and the Deflation Problem," NBER Chapters, in: Monetary Policy with Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 131-202 National Bureau of Economic Research, Inc.
    4. Oda, Nobuyuki & Nagahata, Takashi, 2008. "On the function of the zero interest rate commitment: Monetary policy rules in the presence of the zero lower bound on interest rates," Journal of the Japanese and International Economies, Elsevier, vol. 22(1), pages 34-67, March.
    5. Nobuyuki Oda & Kazuo Ueda, 2005. "The Effects of the Bank of Japan's Zero Interest Rate Commitment and Quantitative Monetary Easing on the Yield Curve: A Macro-Finance Approach," CIRJE F-Series CIRJE-F-336, CIRJE, Faculty of Economics, University of Tokyo.

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