Abstract
Reflecting recent economic developments in Japan, there is a growing interest in how monetary policy should be conducted under low inflation and nominal interest rates. Among several proposed solutions, the conventional wisdom seems to be to commit to lower future short-term nominal interest rates through some variation on price-level targeting. We confirm the effectiveness of such a policy in a large-scale dynamic general equilibrium model: the Japanese Economic Model. However, uncertainty - which affects how monetary policy should be conducted - increases in the presence of the zero bound on nominal interest rates. We posit that the increased uncertainty may explain why the central bank cannot fully commit to a certain fully specified policy scheme far into the future when the economy is caught in a liquidity trap.
| Original language | English |
|---|---|
| Pages (from-to) | 471-508 |
| Number of pages | 38 |
| Journal | International Finance |
| Volume | 8 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 2005 Dec |
| Externally published | Yes |
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ASJC Scopus subject areas
- Geography, Planning and Development
- Development
Cite this
Monetary policy in a liquidity trap : What have we learned, and to what end? / Fujiwara, Ippei; Hara, Naoko; Hirakata, Naohisa; Watanabe, Shinichiro; Yoshimura, Kentaro.
In: International Finance, Vol. 8, No. 3, 12.2005, p. 471-508.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Monetary policy in a liquidity trap
T2 - What have we learned, and to what end?
AU - Fujiwara, Ippei
AU - Hara, Naoko
AU - Hirakata, Naohisa
AU - Watanabe, Shinichiro
AU - Yoshimura, Kentaro
PY - 2005/12
Y1 - 2005/12
N2 - Reflecting recent economic developments in Japan, there is a growing interest in how monetary policy should be conducted under low inflation and nominal interest rates. Among several proposed solutions, the conventional wisdom seems to be to commit to lower future short-term nominal interest rates through some variation on price-level targeting. We confirm the effectiveness of such a policy in a large-scale dynamic general equilibrium model: the Japanese Economic Model. However, uncertainty - which affects how monetary policy should be conducted - increases in the presence of the zero bound on nominal interest rates. We posit that the increased uncertainty may explain why the central bank cannot fully commit to a certain fully specified policy scheme far into the future when the economy is caught in a liquidity trap.
AB - Reflecting recent economic developments in Japan, there is a growing interest in how monetary policy should be conducted under low inflation and nominal interest rates. Among several proposed solutions, the conventional wisdom seems to be to commit to lower future short-term nominal interest rates through some variation on price-level targeting. We confirm the effectiveness of such a policy in a large-scale dynamic general equilibrium model: the Japanese Economic Model. However, uncertainty - which affects how monetary policy should be conducted - increases in the presence of the zero bound on nominal interest rates. We posit that the increased uncertainty may explain why the central bank cannot fully commit to a certain fully specified policy scheme far into the future when the economy is caught in a liquidity trap.
UR - http://www.scopus.com/inward/record.url?scp=33747071200&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=33747071200&partnerID=8YFLogxK
U2 - 10.1111/j.1468-2362.2005.00167.x
DO - 10.1111/j.1468-2362.2005.00167.x
M3 - Article
AN - SCOPUS:33747071200
VL - 8
SP - 471
EP - 508
JO - International Finance
JF - International Finance
SN - 1367-0271
IS - 3
ER -