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Comments on "Price Stability and Japanese Monetary Policy."

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  • Kuttner, Kenneth-N

    (Oberlin College)

Abstract

Invoking the venerable quantity theory of money, Hetzel (2004) argues that central banks are not powerless to end deflation, even when short-term interest rates are zero. While agreeing with his overall conclusion that central banks do possess tools to fight deflation, this commentary points out that the six-fold expansion in current account balances over the past three years has thus far failed to have any discernable impact on the volume of M2 + CDs in Japan. This observation highlights an important obstacle to the direct implementation of the quantity theory's policy prescription when the zero lower bound on the short-term nominal interest rate is binding. Hetzel's proposal to link Japan's current account balance target is nonetheless a useful one, however, as it would represent a step toward a price level target.

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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): 22 (2004)
Issue (Month): 3 (October)
Pages: 37-46

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Handle: RePEc:ime:imemes:v:22:y:2004:i:3:p:37-46

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  1. James Clouse & Dale Henderson & Athanasios Orphanides & David Small & Peter Tinsley, 2000. "Monetary policy when the nominal short-term interest rate is zero," Finance and Economics Discussion Series 2000-51, Board of Governors of the Federal Reserve System (U.S.).
  2. Fujiki, Hiroshi & Okina, Kunio & Shiratsuka, Shigenori, 2004. "Comments on "Price Stability and Japanese Monetary Policy."," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 22(3), pages 25-36, October.
  3. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  4. Bennett T. McCallum, 2000. "Theoretical analysis regarding a zero lower bound on nominal interest rates," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 870-935.
  5. Goodfriend, Marvin, 2000. "Overcoming the Zero Bound on Interest Rate Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 1007-35, November.
  6. Auerbach, Alan J & Obstfeld, Maurice, 2004. "The Case for Open-Market Purchases in a Liquidity Trap," CEPR Discussion Papers 4447, C.E.P.R. Discussion Papers.
  7. Gauti B. Eggertsson, 2003. "How to Fight Deflation in a Liquidity Trap," IMF Working Papers 03/64, International Monetary Fund.
  8. Okina, Kunio, 1999. "Monetary Policy under Zero Inflation: A Response to Criticisms and Questions Regarding Monetary Policy," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(3), pages 157-182, December.
  9. Kenneth N. Kuttner & Adam S. Posen, 2001. "The Great Recession: Lessons for Macroeconomic Policy from Japan," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2), pages 93-186.
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Cited by:
  1. Schenkelberg, Heike & Watzka, Sebastian, 2013. "Real effects of quantitative easing at the zero lower bound: Structural VAR-based evidence from Japan," Journal of International Money and Finance, Elsevier, vol. 33(C), pages 327-357.

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