Ryuzo Miyao (Research Institute for Economics and Business Administration, Kobe University)
Abstract
Is the Japanese economy really trapped at the zero interest rate bound? The question seems particularly important because recent theoretical discussions on liquidity traps suggest that undesirable dynamics such as "deflationary spiral" are likely to occur when the economy reaches the lower zero bound. This paper attempts to answer the above question by analyzing the stability of an equilibrium money demand relationship in Japan. Specifically, it performs a formal analysis on the presence and stability of cointegration in M1 demand in Japan and argues that the answer seems negative. With the double-log specification, a cointegrating M1 relationship exists and is found to be stable (i.e. no break in the interest elasticity) even after 1995 when nominal rates were lowered to a decimal point level or virtually "zero percent".
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Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number
127.
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Benhabib, Jess & Schmitt-Grohe, Stephanie & Uribe, Martin, 2001.
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Benhabib, Jess & Schmitt-Grohe, Stephanie & Uribe, Martin, 1998.
"The Perils of Taylor Rules,"
Working Papers
98-37, C.V. Starr Center for Applied Economics, New York University.
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