Two decades of Japanese monetary policy and the deflation problem
By: Takatoshi Ito, Frederic S. Mishkin.
Contributors: Mishkin, Frederic S.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10878; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10878.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Monetary policy -- Japan.; Deflation (Finance) -- Japan.
Description: "This paper reviews Japanese monetary policy over the last two decades with an emphasis on the experience of deflation from the mid-1990s.  The paper is quite critical of the conduct of monetary policy, particularly from 1998 to 2003.  The Bank of Japan's rhetoric was not helpful in fighting deflation, and the interest rate hike in August 2000 amid deflation was a serious mistake.  Deflation can be quite costly, and a key element in both preventing and escaping deflation is the management of expectations, using either price level or inflation targeting, because the zero lower bound on interest rates means that the overnight interest rate can no longer be used as the instrument of monetary policy.  This paper proposes how to best manage expectations to exit deflation.  Price-level targeting overcomes theoretical problems, such as need for a history dependent strategy, associated with inflation targeting.  However, because actions speak louder than words, management of expectations also involves non-conventional monetary policies, a combination of which might have to be tried to help the Japanese economy escape its deflationary trap"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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