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Taylor Rule During the Zero or Low Interest Rate Era: The Recent Japanese Case

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  • Yutaka Kurihara

Abstract

The Taylor rule has been discussed a lot in theoretical and empirical studies. However, interest rates are quite low all over the world. Japan is no exception. Instead of traditional monetary policy based on interest rates, unconventional monetary policy based on money has been ongoing. This paper investigates whether the Taylor rule fits well in the recent Japanese case. With some other variables added to the Taylor rule along with price gap and output gap, the augmented Taylor rule is examined empirically. The empirical results show that the traditional Taylor rule is more appropriate than most augmented ones; however, exchange rate should be taken into account in determining monetary policy. Moreover, a more aggressive monetary policy from the latter part of the 2000s is needed.

Suggested Citation

  • Yutaka Kurihara, 2017. "Taylor Rule During the Zero or Low Interest Rate Era: The Recent Japanese Case," Applied Economics and Finance, Redfame publishing, vol. 4(1), pages 1-8, January.
    • Handle: RePEc:rfa:aefjnl:v:4:y:2017:i:1:p:1-8
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    References listed on IDEAS

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    1. Barbara Annicchiarico & Alessandro Piergallini, 2011. "Country‐Specific Risk Premium, Taylor Rules, and Exchange Rates," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 40(1-2), pages 1-27, February.
    2. Joseph D. Alba & Donghyun Park & Taojun Xie, 2015. "Predictability of Exchange Rates With Taylor Rule Fundamentals: Evidence from Inflation-Targeting Emerging Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(4), pages 714-728, July.
    3. Cinzia Alcidi & Alessandro Flamini & Andrea Fracasso, 2011. "Policy Regime Changes, Judgment and Taylor rules in the Greenspan Era," Economica, London School of Economics and Political Science, vol. 78(309), pages 89-107, January.
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    Cited by:

    1. Yutaka Kurihara & Akio Fukushima, 2020. "Taylor and McCallum Rule during the Unprecedented Monetary Easing Era: The Recent Japanese Case," Applied Economics and Finance, Redfame publishing, vol. 7(3), pages 70-77, May.

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    More about this item

    Keywords

    exchange rate; monetary policy; Taylor rule; zero interest rate;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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