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Peril of the Inflation Exit Condition

Author

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  • Fumio Hayashi

    (National Graduate Institute for Policy Studies)

Abstract

Recent empirical evidence on monetary policy in Japan suggests that exits from the zero-interest-rate policy triggered by policy shocks can be expansionary. This paper provides theoretical examples of such expansionary policy-induced exits. The examples suggest that the exit condition (the Bank of Japan’s stated commitment of not exiting from the zero-rate regime unless the inflation rate rises above a certain threshold) may have made it difficult for the economy to escape from the liquidity trap.

Suggested Citation

  • Fumio Hayashi, 2019. "Peril of the Inflation Exit Condition," The Japanese Economic Review, Springer, vol. 70(1), pages 4-27, March.
    • Handle: RePEc:spr:jecrev:v:70:y:2019:i:1:d:10.1111_jere.12218
    DOI: 10.1111/jere.12218
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    References listed on IDEAS

    as
    1. Fumio Hayashi & Junko Koeda, 2014. "Exiting from QE," NBER Working Papers 19938, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    E58; E52; C32;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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