Monetary Policy during Japan's Lost Decade
AbstractWe develop a quantitative costly price adjustment model with capital formation for the Japanese Economy. The model respects the zero interest rate bound and is calibrated to reproduce the nominal and real facts from the 1990s. We use the model to investigate the properties of alternative monetary policies during this period. The setting of the long-run nominal interest rate in a Taylor rule is much more important for avoiding the zero bound than the setting of the reaction coefficients. A long-run interest rate target of 2.3 percent during the 1990s avoids the zero bound and enhances welfare.
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Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-343.
Length: 42 pages
Date of creation: May 2005
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- NEP-MAC-2005-06-27 (Macroeconomics)
- NEP-MON-2005-06-27 (Monetary Economics)
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