Japan's Monetary Policy Transition, 1955-2004
This paper surveys the postwar evolution of Bank of Japan (BOJ) monetary policy. Using both qualitative and quantitative data, we describe the changes in the money supply process in response to changing institutional constraints. We focus on the transition from quantitative to qualitative control mechanisms, illuminating, in particular, the important role of the BOJ=s lending guidance (Awindow guidance@) in the early periods and financial liberalization in subsequent periods. Monetary policy reaction functions are estimated and used to identify major changes in policy instruments, targets, and indicators. We analyze the historical behavior of the money multipliers and their components, highlighting reasons for their current depressed state. We conclude with comments on current challenges facing the monetary authorities.
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