mean by an announcement effect. what i learn from hawtrey's analysis is that the'classical'bank rate system was strong, or could be strong, in its announcement effects. ” source : all souls college, university of oxford - - economic perspectives chart 5 japan ’ s potential growth rate y / y % chg. total factor productivity capital stock number of employed hours worked potential growth rate - 1 - 2 fy 83 note : the potential growth rate is estimated by the research and statistics department, bank of japan. sources : cabinet office ; bank of japan ; ministry of internal affairs and communications ; ministry of health, labour and welfare ; ministry of economy, trade and industry ; research institute of economy, trade and industry. 15 16 chart 6 real gdp and monetary policy responses after the global financial crisis policy rates real gdp s. a., 2007 / q1 = 100 % japan united states euro area united kingdom japan united states euro area united kingdom - 1 cy 07 cy 95 note : for japan, for the period when no target interest rate was adopted, figures for the policy rate are the interest rate applied on excess reserves. sources : cabinet office ; haver ; bank of japan ; federal reserve ; european central bank ; bank of england. chart 7 real interest rate and natural rate of interest ( potential growth rate ) % real interest rate potential growth rate strengthening growth potential - 1 fy 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 qqe notes : 1. the real interest rate is calculated by subtracting the year - on - year rate of increase in the cpi ( excluding fresh food and energy ) from the yield on 10 - year jgbs. notes : 2. the potential growth rate is estimated by the research and statistics department, bank of japan. sources : ministry of internal affairs and communications ; bloomberg ; cabinet office ; bank of japan ; ministry of health, labour and welfare ; sources : ministry of economy, trade and industry ; research institute of economy, trade and industry. chart 8 effects of " quantitative and qualitative monetary easing " corporate profits unemployment rate s. a., % ratio of current profits to sales ( all industries and enterprises ) s. a., % cy 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 cy00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 hourly

3 / 4 percent using the same estimates for r * and u *. the more aggressive rule does a reasonably good job of accounting for movements in the federal funds rate in the decade prior to its falling to its effective lower bound in late 2008, see david reifschneider ( 2016 ), “ gauging the ability of the fomc to respond to future recessions ( pdf ), ” finance and economics discussion series 2016 – 068 ( washington : board of governors of the federal reserve system, august ). for more information on the standard taylor rule, see john b. taylor ( 1993 ), “ discretion versus policy rules in practice, ” carnegierochester conference series on public policy, vol. 39 ( december ), pp. 195 – 214. bis central bankers ’ speeches our expanded toolkit to address the challenges posed by the financial crisis and the subsequent severe recession and slow recovery, the federal reserve significantly expanded its monetary policy toolkit. in 2006, the congress had approved plans to allow the fed, beginning in 2011, to pay interest on banks ’ reserve balances. 9 in the fall of 2008, the congress moved up the effective date of this authority to october 2008. that authority was essential. paying interest on reserve balances enables the fed to break the strong link between the quantity of reserves and the level of the federal funds rate and, in turn, allows the federal reserve to control short - term interest rates when reserves are plentiful. in particular, once economic conditions warrant a higher level for market interest rates, the federal reserve could raise the interest rate paid on excess reserves – the ioer rate. a higher ioer rate encourages banks to raise the interest rates they charge, putting upward pressure on market interest rates regardless of the level of reserves in the banking sector. while adjusting the ioer rate is an effective way to move market interest rates when reserves are plentiful, federal funds have generally traded below this rate. this relative softness of the federal funds rate reflects, in part, the fact that only depository institutions can earn the ioer rate. to put a more effective floor under short - term interest rates, the federal reserve created supplementary tools to be used as needed. for instance, the overnight reverse repurchase agreement ( on rrp ) facility is available to a variety of counterparties, including eligible money market funds, government - sponsored enterprises, broker - dealers, and depository institutions. through it, eligible counterparties may invest funds overnight