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Further Monetary Easing Policies under the Non-negativity Constraints of Nominal Interest Rates: Summary of the Discussion Based on Japan's Experience

  • Oda, Nobuyuki

    (Bank of Japan)

  • Okina, Kunio

    (Bank of Japan)

Registered author(s):

    This paper examines issues surrounding monetary policy under zero interest rates based on one and a half yearfs experience in Japan. After reviewing the market development in Japan, it summarizes the transmission mechanism of monetary policy under zero nominal interest rates, and considers what would be the likely policy options if a central bank were to conduct further monetary easing. Specifically, a more detailed policy announcement is regarded as feasible, less costly, and the less risky option, although additional effects of monetary easing through this measure are relatively limited. On the other hand, introduction of a temporary fixed exchange rate system and a huge increase in the outright purchase of medium- and long-term government bonds can induce relatively large effects, although the uncertainty in the effects as well as the accompanied costs and risks may be very large. In addition, the paper considers the validity of introducing inflation targeting. It summarizes that inflation targeting is not necessarily easy to distinguish from traditional policy management based on an overall consideration. Furthermore, given recent tendencies in Japan, the paper argues that the introduction of inflation targeting in the current situation might impair the conduct of monetary policy in the absence of preconditions for benefiting from its intrinsic merits.

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    File URL: http://www.imes.boj.or.jp/research/papers/english/me19-s1-12.pdf
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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): S1 (February)
    Pages: 323-360

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    Handle: RePEc:ime:imemes:v:19:y:2001:i:s1:p:323-360
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    1. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June.
    2. John B. Taylor, 1995. "The Monetary Transmission Mechanism: An Empirical Framework," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 11-26, Fall.
    3. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
    4. Reinhart, Carmen & Smith, R Todd, 2002. "Temporary controls on capital inflows," MPRA Paper 13863, University Library of Munich, Germany.
    5. Shiller, Robert J, 1979. "The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1190-1219, December.
    6. Allan H. Meltzer, 1995. "Monetary, Credit and (Other) Transmission Processes: A Monetarist Perspective," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 49-72, Fall.
    7. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
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