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The Zero Interest Rate Floor (ZIF) and its Implications for Monetary Policy in Japan

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  • Douglas Laxton
  • Benjamin L Hunt

Abstract

This paper uses the IMF's macroeconomic model MULTIMOD to examine the implications of the zero-interest-rate floor (ZIF) for the design of monetary policy in Japan. Similar to findings in other studies, targeting rates of inflation lower than 2.0 percent significantly increases the likelihood of the ZIF becoming binding. Systematic monetary policy strategies that respond strongly to stabilize output and inflation, or that incorporate some explicit price-level component, can help to mitigate the implications of the ZIF.

Suggested Citation

  • Douglas Laxton & Benjamin L Hunt, 2001. "The Zero Interest Rate Floor (ZIF) and its Implications for Monetary Policy in Japan," IMF Working Papers 01/186, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:01/186
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Laxton, Douglas & N'Diaye, Papa & Pesenti, Paolo, 2006. "Deflationary shocks and monetary rules: An open-economy scenario analysis," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 665-698, December.
    2. Ondra Kamenik & Heesun Kiem & Vladimir Klyuev & Douglas Laxton, 2013. "Why Is Canada's Price Level So Predictable?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 71-85, February.
    3. Dag Kolsrud, 2008. "Stochastic Ceteris Paribus Simulations," Computational Economics, Springer;Society for Computational Economics, vol. 31(1), pages 21-43, February.
    4. Günter Coenen & Volker W. Wieland, 2004. "Exchange-Rate Policy and the Zero Bound on Nominal Interest Rates," American Economic Review, American Economic Association, vol. 94(2), pages 80-84, May.
    5. Coenen, Gunter & Wieland, Volker, 2003. "The zero-interest-rate bound and the role of the exchange rate for monetary policy in Japan," Journal of Monetary Economics, Elsevier, vol. 50(5), pages 1071-1101, July.
    6. Peter Tulip, 2014. "Fiscal Policy and the Inflation Target," International Journal of Central Banking, International Journal of Central Banking, vol. 10(2), pages 63-96, June.
    7. Daniel Leigh, 2004. "Monetary Policy and the Dangers of Deflation:Lessons from Japan," Economics Working Paper Archive 511, The Johns Hopkins University,Department of Economics.
    8. Fuchi, Hitoshi & Oda, Nobuyuki & Ugai, Hiroshi, 2008. "Optimal inflation for Japan's economy," Journal of the Japanese and International Economies, Elsevier, vol. 22(4), pages 439-475, December.
    9. Ortiz, Marco, 2014. "Fat-Tailed Shocks and the Central Bank Reaction," Working Papers 2014-002, Banco Central de Reserva del Perú.
    10. Shin-Ichi Nishiyama, 2009. "Monetary Policy Lag, Zero Lower Bound, and Inflation Targeting," Staff Working Papers 09-2, Bank of Canada.

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