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Does Excess Liquidity Pose a Threat in Japan?

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  • Gauti B. Eggertsson
  • Jonathan David Ostry

Abstract

This paper examines the effects of quantitative easing implemented by the Bank of Japan (BoJ) since early 2001, looking specifically at the impact on inflation expectations and real asset prices. It suggests a number of possible channels through which quantitative easing may have exerted influence, and reviews some of the empirical evidence linking open market operations and long-term bond purchases to real yields and other asset prices. It argues that quantitative easing has had smaller effects on nominal and real variables than desired, mainly because the BoJ has not succeeded in credibly communicating its policy intentions once the zero bound on short-term rates ceases to be binding. It argues that setting clear goals for inflation and a return to interest rate targeting are not only key elements of a successful strategy to avoid deflation, but are also essential to pin down expectations and avoid instability once deflation wanes.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Policy Discussion Papers with number 05/5.

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Length: 27
Date of creation: 01 Apr 2005
Date of revision:
Handle: RePEc:imf:imfpdp:05/5

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Cited by:
  1. Gauti B. Eggertsson, 2006. "Fiscal multipliers and policy coordination," Staff Reports, Federal Reserve Bank of New York 241, Federal Reserve Bank of New York.
  2. KAMGNA, Severin Yves & Ndambendia, Houdou, 2008. "Excès de liquidité systémique et effectivité de la politique monétaire : cas des pays de la CEMAC
    [Excess liquidity and monetary policy effectiveness: The case of CEMAC countries]
    ," MPRA Paper 9599, University Library of Munich, Germany.
  3. Khemraj, Tarron, 2013. "Bank liquidity preference and the investment demand constraint," Economic Modelling, Elsevier, Elsevier, vol. 33(C), pages 977-990.
  4. Gauti B. Eggertsson, 2005. "Great expectations and the end of the depression," Staff Reports, Federal Reserve Bank of New York 234, Federal Reserve Bank of New York.

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