Advanced Search
MyIDEAS: Login to save this paper or follow this series

Inflation Targeting and Japan: Why has the Bank of Japan not Adopted Inflation Targeting?

Contents:

Author Info

  • Takatoshi Ito

Abstract

The paper aims at explaining why the Bank of Japan has not adopted inflation targeting, despite calls for such a policy. Disclosed minutes of the Monetary Policy Meetings of the Bank of Japan, after March 1998, as well as Speeches by its members give clues to changing reasons against inflation targeting. Inflation targeting was not adopted in Japan in the early years (the first wave of interest in1999-2000) because the Board members were not sure about an appropriate price index, and a specific number for an appropriate inflation rate. A Bank of Japan study, completed in October 2000, did not give any clear answers. Inflation targeting was not adopted in later years (2001-2003), despite the inflation-targeting-like commitment strategy adopted in March 2001, because the Board members thought that conventional tools to increase the inflation rate were not available. As such, they thought that announcing a target with a positive inflation rate would damage confidence. In terms of introducing unconventional measures, the Bank of Japan worried about the transmission channels and the damage to its balance sheet. Towards the end of Governor Hayami fs term, the views against inflation targeting turned sharply negative, as news reports suggested that it may be linked to the new Governor fs appointment. Therefore, , why inflation targeting was not adopted, can be explained and understood from a political economy perspective.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w10818.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10818.

as in new window
Length:
Date of creation: Oct 2004
Date of revision:
Publication status: published as Takatoshi Ito, 2004. "Inflation Targeting and Japan: Why has the Bank of Japan not Adopted Inflation Targeting?," RBA Annual Conference Volume, in: Christopher Kent & Simon Guttmann (ed.), The Future of Inflation Targeting Reserve Bank of Australia.
Handle: RePEc:nbr:nberwo:10818

Note: HE ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Shigenori Shiratsuka, 1999. "Measurement errors and quality-adjustment methodology: lessons from the Japanese CPI," Economic Perspectives, Federal Reserve Bank of Chicago, Federal Reserve Bank of Chicago, issue Q II, pages 2-13.
  2. Fujiki, Hiroshi & Okina, Kunio & Shiratsuka, Shigenori, 2001. "Monetary Policy under Zero Interest Rate: Viewpoints of Central Bank Economists," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(1), pages 89-130, February.
  3. Mishkin, Frederic S., 1978. "The Household Balance Sheet and the Great Depression," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 38(04), pages 918-937, December.
  4. Warwick J. McKibbin, 2002. "Macroeconomic Policy in Japan," Asian Economic Papers, MIT Press, MIT Press, vol. 1(2), pages 133-165.
  5. Thomas F. Cargill & Michael M. Hutchison & Takatoshi Ito, 2001. "Financial Policy and Central Banking in Japan," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262032856, December.
  6. Frederic S. Mishkin, 1990. "Asymmetric Information and Financial Crises: A Historical Perspective," NBER Working Papers 3400, National Bureau of Economic Research, Inc.
  7. Fumio Hayashi & Edward C. Prescott, 2002. "The 1990s in Japan: A Lost Decade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 206-235, January.
  8. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, American Economic Association, vol. 73(3), pages 257-76, June.
  9. Takatoshi Ito & Kimie Harada, 2000. "Japan Premium and Stock Prices: Two Mirrors of Japanese Banking Crises," NBER Working Papers 7997, National Bureau of Economic Research, Inc.
  10. Svensson, Lars-E-O, 2001. "The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 277-312, February.
  11. Frederic S. Mishkin, 1996. "The Channels of Monetary Transmission: Lessons for Monetary Policy," NBER Working Papers 5464, National Bureau of Economic Research, Inc.
  12. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
  13. Gauti B. Eggertsson & Michael Woodford, 2003. "Optimal Monetary Policy in a Liquidity Trap," NBER Working Papers 9968, National Bureau of Economic Research, Inc.
  14. James Clouse & Dale Henderson & Athanasios Orphanides & David Small & Peter Tinsley, 2000. "Monetary policy when the nominal short-term interest rate is zero," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2000-51, Board of Governors of the Federal Reserve System (U.S.).
  15. Takatoshi Ito & Frederic S. Mishkin, 2006. "Two Decades of Japanese Monetary Policy and the Deflation Problem," NBER Chapters, in: Monetary Policy with Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 131-202 National Bureau of Economic Research, Inc.
  16. David Card & Dean Hyslop, 1997. "Does Inflation “Grease the Wheels of the Labor Market”?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 71-122 National Bureau of Economic Research, Inc.
  17. Oda, Nobuyuki & Okina, Kunio, 2001. "Further Monetary Easing Policies under the Non-negativity Constraints of Nominal Interest Rates: Summary of the Discussion Based on Japan's Experience," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 323-360, February.
  18. Takeo Hoshi & Anil Kashyap, 2004. "Corporate Financing and Governance in Japan: The Road to the Future," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262582481, December.
  19. Okina, Kunio & Shiratsuka, Shigenori, 2002. "Asset Price Bubbles, Price Stability, and Monetary Policy: Japan' s Experience," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(3), pages 35-76, October.
  20. Erica L. Groshen & Mark E. Schweitzer, 1996. "The effects of inflation on wage adjustments in firm-level data: grease or sand?," Staff Reports, Federal Reserve Bank of New York 9, Federal Reserve Bank of New York.
  21. Frederic S. Mishkin, 1997. "The causes and propagation of financial instability : lessons for policy makers," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 55-96.
  22. David E. Lebow & David J. Stockton & William L. Wascher, 1995. "Inflation, nominal wage rigidity, and the efficiency of labor markets," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 95-45, Board of Governors of the Federal Reserve System (U.S.).
  23. Takatoshi Ito, 1991. "The Japanese Economy," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262090295, December.
  24. Berg, C. & Jonung, L., 1998. "Pioneering Price Level Targeting: The Swedish Experience 1931-1937," Papers, Stockholm - International Economic Studies 642, Stockholm - International Economic Studies.
  25. Kuroda, Sachiko & Yamamoto, Isamu, 2003. "Are Japanese Nominal Wages Downwardly Rigid? (Part II): Examinations Using a Friction Model," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(2), pages 31-68, August.
  26. David E. Lebow & Raven E. Saks & Beth Anne Wilson, 1999. "Downward nominal wage rigidity: evidence from the employment cost index," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1999-31, Board of Governors of the Federal Reserve System (U.S.).
  27. Thomas F. Cargill & Michael M. Hutchison & Takatoshi Ito, 1997. "The Political Economy of Japanese Monetary Policy," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262032473, December.
  28. Kuroda, Sachiko & Yamamoto, Isamu, 2003. "Are Japanese Nominal Wages Downwardly Rigid? (Part I): Examinations of Nominal Wage Change Distributions," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(2), pages 1-29, August.
  29. Kuroda, Sachiko & Yamamoto, Isamu, 2003. "The Impact of Downward Nominal Wage Rigidity on the Unemployment Rate: Quantitative Evidence from Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(4), pages 57-85, December.
  30. 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, Elsevier, vol. 15(1), pages 75-100, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Hiroyuki Taguchi & Woong-Ki Sohn, 2010. "Inflation Targeting and Pass-through Rate in East Asian Economies," Macroeconomics Working Papers 23115, East Asian Bureau of Economic Research.
  2. Alan J. Auerbach & Maurice Obstfeld, 2005. "The Case for Open-Market Purchases in a Liquidity Trap," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 110-137, March.
  3. Tom Cargill & Federico Guerrero, 2006. "A Reassessment of the Problems with Interest Targeting: What Have We Learned from Japanese Monetary Policy?," Working Papers, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics 06-010, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics.
  4. Claudio Morana, 2005. "The Japanese deflation: has it had real effects? Could it have been avoided?," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(12), pages 1337-1352.
  5. Baltensperger, Ernst & Fischer, Andreas M. & Jordan, Thomas J., 2007. "Strong goal independence and inflation targets," European Journal of Political Economy, Elsevier, Elsevier, vol. 23(1), pages 88-105, March.
  6. Gerd Weinrich & Luca Colombo, 2005. "Money, Inventories and Underemployment in Deflationary Recessions," Computing in Economics and Finance 2005, Society for Computational Economics 156, Society for Computational Economics.
  7. Luca Colombo & Gerd Weinrich, 2006. "The Role of Expectations in a Macroeconomic Model with Inventories," Computing in Economics and Finance 2006, Society for Computational Economics 65, Society for Computational Economics.
  8. Burkhart, Lucas & Fischer, Andreas M, 2007. "Communicating Policy Options at the Zero Bound," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6563, C.E.P.R. Discussion Papers.
  9. Takatoshi Ito & Frederic S. Mishkin, 2004. "Two Decades of Japanese Monetary Policy and the Deflation Problem," NBER Working Papers 10878, National Bureau of Economic Research, Inc.
  10. Dai, Meixing & Sidiropoulos, Moïse, 2005. "Flexibility in inflation targeting, financial markets and macroeconomic stability," MPRA Paper 13864, University Library of Munich, Germany.
  11. Tom Cargill & Federico Guerrero, 2006. "A ‘Second-Best’ Rationale to Deflationary Monetary Policy in Japan," Working Papers, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics 06-009, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:10818. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.