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The effects of zero interest rate commitment in Japan

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  • Kunihiro Hanabusa

Abstract

This article examines the effectiveness of the Bank of Japan's Zero Interest Rate Commitment Policy (ZIRCP). Using the Exponential Autoregressive Conditional Heteroskedasticity model, we present an empirical analysis of the volatility of return on Japanese interest rates for the short-, medium-, long- and super long-term. We find that each interest rate is affected by the ZIRCP. However, the ZIRCP stabilizes the daily change for only the super long-term interest rate. This suggests that the ZIRCP effect includes the decrease in interest rate and the reduction in super long-term variability.

Suggested Citation

  • Kunihiro Hanabusa, 2010. "The effects of zero interest rate commitment in Japan," Applied Economics Letters, Taylor & Francis Journals, vol. 17(13), pages 1273-1277.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:13:p:1273-1277
    DOI: 10.1080/00036840902881835
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    References listed on IDEAS

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    1. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    2. Nagayasu, Jun, 2002. "On the term structure of interest rates and inflation in Japan," Journal of Economics and Business, Elsevier, vol. 54(5), pages 505-523.
    3. Hiroshi Ugai, 2006. "Effects of the Quantitative Easing Policy: A Survey of Empirical Analyses," Bank of Japan Working Paper Series 06-E-10, Bank of Japan.
    4. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    5. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
    6. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    7. Okina, Kunio & Shiratsuka, Shigenori, 2004. "Policy commitment and expectation formation: Japan's experience under zero interest rates," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 75-100, March.
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    Cited by:

    1. Yoshito Funashima, 2022. "Economic policy uncertainty and unconventional monetary policy," Manchester School, University of Manchester, vol. 90(3), pages 278-292, June.
    2. Yutaka Kurihara, 2017. "Are Unconventional Monetary Policy and Large Scale Fiscal Policy Effective?: The Case of Japan," Applied Finance and Accounting, Redfame publishing, vol. 3(2), pages 42-48, August.

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