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The Bank of Japan's Struggle with the Zero Lower Bound on Nominal Interest Rates: Exercises in Expectations Management

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  • Kazuo Ueda

    (Faculty of Economics, University of Tokyo)

Abstract

This paper reviews and evaluates the Bank of Japan (BOJ)'s monetary policy during the period 1998-2005. In doing so, it pays particular attention to the development of academic thinking on what central banks can do at or near zero interest rates and its relationship with the actual policy measures adopted by the BOJ. The paper argues that the BOJ has done most of the things recommended by academic economists. The most important of these is expectations management as crystallized in the so-called zero interest rate policy. The academic origin of this policy can be found in the seminal work of Krugman. The paper points out, however, that this fact, unfortunately, remained unnoticed by many, and explores reasons behind. The paper then goes on to survey the empirical literature on the effects of the measures adopted by the BOJ. The literature has found that the zero interest rate policy has had significant effects on the term structure of interest rates and supported the economy. Finally, the paper discusses possible reasons for the failure of such measures to stop the deflation of the economy within a short period of time. It points out some difficulties inherent in the expectations management approach and problems created by the impaired financial system.

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File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2005/2005cf375.pdf
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Bibliographic Info

Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-375.

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Length: 24 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:tky:fseres:2005cf375

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  1. Naohiko Baba & Motoharu Nakashima & Yosuke Shigemi & Kazuo Ueda, 2006. "The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 2(1), March.
  2. Takashi Nagahata & Toshitaka Sekine, 2002. "The Effects of Monetary Policy on Firm Investment after the Collapse of the Asset Price Bubble: An Investigation Using Japanese Micro Data," Bank of Japan Working Paper Series Research and Statistics D, Bank of Japan.
  3. Nobuyuki Oda & Kazuo Ueda, 2007. "The Effects Of The Bank Of Japan'S Zero Interest Rate Commitment And Quantitative Monetary Easing On The Yield Curve: A Macro-Finance Approach," The Japanese Economic Review, Japanese Economic Association, Japanese Economic Association, vol. 58(3), pages 303-328.
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Cited by:
  1. Hiroshi Ugai, 2007. "Effects of the Quantitative Easing Policy: A Survey of Empirical Analyses," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(1), pages 1-48, March.

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