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Monetary Policy under Zero Interest Rate: Viewpoints of Central Bank Economists

  • Fujiki, Hiroshi

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

  • Okina, Kunio

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

  • Shiratsuka, Shigenori

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

Various proposals have been raised with respect to a desirable framework of monetary policy under the zero interest rate in Japan. By taking due account of such proposals, this paper intends to examine monetary policy options under the environment of the zero interest rate. In so doing, we first describe the policy framework of the "zero interest rate policy," which was in place from February 1999 to August 2000, and its transmission mechanism. Then, in view of the problems intrinsic to the zero interest rate, we address three important questions: (1) the policy options that might be available in response to future economic developments, (2) the major risks associated with these policy options; and (3) how such risks might change under varying economic conditions. On this basis, we finally consider the medium- and long-term "style" of monetary policy in Japan in order to improve its effectiveness and efficiency.

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Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

Volume (Year): 19 (2001)
Issue (Month): 1 (February)
Pages: 89-130

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Handle: RePEc:ime:imemes:v:19:y:2001:i:1:p:89-130
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  1. Bennett T. McCallum, 2000. "Theoretical analysis regarding a zero lower bound on nominal interest rates," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 870-935.
  2. Shiller, Robert J. & Huston McCulloch, J., 1990. "The term structure of interest rates," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 13, pages 627-722 Elsevier.
  3. Bennett T. McCallum, 1995. "Two Fallacies Concerning Central Bank Independence," NBER Working Papers 5075, National Bureau of Economic Research, Inc.
  4. Kenneth N. Kuttner & Adam S. Posen, 1999. "Does talk matter after all? Inflation targeting and central bank behavior," Staff Reports 88, Federal Reserve Bank of New York.
  5. Marvin Goodfriend, 2000. "Overcoming the zero bound on interest rate policy," Working Paper 00-03, Federal Reserve Bank of Richmond.
  6. Tommaso Padoa-Schioppa, 1996. "Styles of Monetary Management," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 14(1), pages 40-64, July.
  7. Okina, Kunio & Shirakawa, Masaaki & Shiratsuka, Shigenori, 2001. "The Asset Price Bubble and Monetary Policy: Japan's Experience in the Late 1980s and the Lessons: Background Paper," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 395-450, February.
  8. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
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