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Monetary Policy under Zero Inflation: A Response to Criticisms and Questions Regarding Monetary Policy

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  • Okina, Kunio

    (Institute for Monetary & Econ Studies, Bank of Japan)

Abstract

The Japanese economy has recently been faced with massive nonperforming assets and a large output gap. Thanks to the historically unprecedented accommodative monetary policy of the Bank of Japan (BOJ), prices have generally been stable and severe deflation has been avoided. Despite this, the BOJ has been questioned and criticized regarding its conduct of monetary policy. For example, why doesn't it adopt inflation targeting? Why has the BOJ stubbornly refused to increase the outright purchase of long-term government bonds? Why does the BOJ implement fund absorption operations in the middle of monetary easing? This paper tries to evaluate questions and criticisms regarding the conduct of the BOJ's monetary policy under zero inflation by using the following two criteria: (1) the BOJ will take measures necessary to achieve the sound development of the national economy through the pursuit of price stability in the long run; however, (2) the BOJ will not take such measures if the side effects are deemed greater than the effects, which makes it difficult to achieve the objective in (1).

Suggested Citation

  • Okina, Kunio, 1999. "Monetary Policy under Zero Inflation: A Response to Criticisms and Questions Regarding Monetary Policy," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(3), pages 157-182, December.
  • Handle: RePEc:ime:imemes:v:17:y:1999:i:3:p:157-182
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    Cited by:

    1. Mackowiak, Bartosz, 2006. "What does the Bank of Japan do to East Asia?," Journal of International Economics, Elsevier, vol. 70(1), pages 253-270, September.
    2. Itoh, Motoshige & Shimoi, Naoki, 2000. "On the Role of Monetary Policy in a Deflationary Economy: The Case of Japan," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 238-260, December.
    3. Motoshige Itoh & Naoki Shimoi, 2000. "On the role of monetary policy in a deflationary economy: The case of Japan," CIRJE F-Series CIRJE-F-90, CIRJE, Faculty of Economics, University of Tokyo.
    4. Baltensperger, Ernst & Fischer, Andreas M. & Jordan, Thomas J., 2007. "Strong goal independence and inflation targets," European Journal of Political Economy, Elsevier, vol. 23(1), pages 88-105, March.
    5. Morana, Claudio, 2004. "The Japanese stagnation: an assessment of the productivity slowdown hypothesis," Japan and the World Economy, Elsevier, vol. 16(2), pages 193-211, April.
    6. Cargill, Thomas F. & Parker, Elliott, 2004. "Price deflation, money demand, and monetary policy discontinuity: a comparative view of Japan, China, and the United States," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 125-147, March.
    7. Orphanides, Athanasios & Wieland, Volker, 2000. "Efficient Monetary Policy Design near Price Stability," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 327-365, December.
    8. Ronald McKinnon & Gunther Schnabl, 2002. "Synchronized Business Cycles in East Asia: Fluctuations in the Yen/Dollar Exchange Rate and China’s Stabilizing Role," Working Papers 02010, Stanford University, Department of Economics.
    9. Clouse James & Henderson Dale & Orphanides Athanasios & Small David H. & Tinsley P.A., 2003. "Monetary Policy When the Nominal Short-Term Interest Rate is Zero," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-65, September.
    10. Gern, Klaus-Jürgen & Sander, Birgit & Scheide, Joachim & Schlie, Markus & Strauß, Hubert, 1999. "Expansion der Weltwirtschaft bleibt moderat," Open Access Publications from Kiel Institute for the World Economy 2346, Kiel Institute for the World Economy (IfW).
    11. Orphanides, Athanasios, 2004. "Monetary policy in deflation: the liquidity trap in history and practice," The North American Journal of Economics and Finance, Elsevier, vol. 15(1), pages 101-124, March.
    12. HORI Masahiro & TANABE Tomoyuki & YAMANE Makoto & AOKI Daiju, 2002. "Monetary Policy and the Liquidity Trap(in Japanese)," ESRI Discussion paper series 023, Economic and Social Research Institute (ESRI).
    13. Singleton,John, 2010. "Central Banking in the Twentieth Century," Cambridge Books, Cambridge University Press, number 9780521899093, May.
    14. Kuttner, Kenneth-N, 2004. "Comments on "Price Stability and Japanese Monetary Policy."," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 22(3), pages 37-46, October.
    15. Gern, Klaus-Jürgen & Gottschalk, Jan & Kamps, Christophe & Sander, Birgit & Scheide, Joachim & Schlie, Markus & Strauß, Hubert, 1999. "Spürbare Belebung der Weltwirtschaft," Open Access Publications from Kiel Institute for the World Economy 2317, Kiel Institute for the World Economy (IfW).

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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