IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

On the role of monetary policy in a deflationary economy: The case of Japan

  • Motoshige Itoh

    (Faculty of Economics, University of Tokyo)

  • Naoki Shimoi

    (CIRJE, Faculty of Economics, University of Tokyo)

Registered author(s):

    In this paper we review the role of monetary policy for a country facing deflationary pressure based on the recent experience of the Japanese economy. We discuss economic background of inflation policy in Japan and analyze the impacts of the policy. Japanese economy is in a liquidity trap now. Two types of reasons were pointed out to be in liquidity traps. They are a real factor and a monetary factor. The former factor is the case analyzed by Krugman, where IS curve shifts due to structural reason such as aging of population. Under this condition a negative real interest rate is requested to escape from the liquidity trap. However, liquidity trap can also arise from monetary reason and the scenario of escape from the trap is different. We illustrate the case where deflationary expectation leads the economy to a liquidity trap. If it is necessary to utilize monetary policy for generating inflation expectation, we then need some explicit monetary policy rules, which is strong enough to escape from liquidity traps but at the same time which is effective to suppress unnecessary political pressure and to keep the independence of the central bank. Inflation targeting is a candidate for such a rule.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2000/2000cf90.pdf
    Download Restriction: no

    Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-90.

    as
    in new window

    Length: 42 pages
    Date of creation: Sep 2000
    Date of revision:
    Handle: RePEc:tky:fseres:2000cf90
    Contact details of provider: Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033
    Phone: +81-3-5841-5644
    Fax: +81-3-5841-8294
    Web page: http://www.cirje.e.u-tokyo.ac.jp/index.html
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Buiter, Willem H. & Panigirtzoglou, Nikolaos, 1999. "Liquidity Traps: How to Avoid Them and How to Escape Them," CEPR Discussion Papers 2203, C.E.P.R. Discussion Papers.
    2. 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.
    3. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
    4. Fischer, Stanley, 1982. "Seigniorage and the Case for a National Money," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 295-313, April.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:tky:fseres:2000cf90. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CIRJE administrative office)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.