Monetary Policy under 0 inflation

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1、MONETARYANDECONOMICSTUDIES/DECEMBER1999MonetaryPolicyunderZeroInflationMonetaryPolicyunderZeroInflation:AResponsetoCriticismsandQuestionsRegardingMonetaryPolicyKunioOkinaTheJapaneseeconomyhasrecentlybeenfacedwithmassivenonperformingassetsandalargeoutputgap.Thankstothehistoricallyunpre

2、cedentedaccommodativemonetarypolicyoftheBankofJapan(BOJ),priceshavegenerallybeenstableandseveredeflationhasbeenavoided.Despitethis,theBOJhasbeenquestionedandcriticizedregardingitsconductofmonetarypolicy.Forexample,whydoesn’titadoptinflationtargeting?WhyhastheBOJstubbornlyrefusedtoincr

3、easetheoutrightpurchaseoflong-termgovernmentbonds?WhydoestheBOJimplementfundabsorptionoperationsinthemiddleofmonetaryeasing?ThispapertriestoevaluatequestionsandcriticismsregardingtheconductoftheBOJ’smonetarypolicyunderzeroinflationbyusingthefollowingtwocriteria:(1)theBOJwilltakemeasur

4、esnecessarytoachievethesounddevelopmentofthenationaleconomythroughthepursuitofpricestabilityinthelongrun;however,(2)theBOJwillnottakesuchmeasuresifthesideeffectsaredeemedgreaterthantheeffects,whichmakesitdifficulttoachievetheobjectivein(1).Keywords:Monetarypolicy;Zerointerestrates;Lon

5、g-terminterestrates;Inflationtargeting;Outrightpurchaseofgovernmentbonds;Quantitativeeasing;Excessreserves;Basemoney;Balancesheetproblem;LiquiditytrapDirector,InstituteforMonetaryandEconomicStudies,BankofJapanTheauthorwouldliketothankYasuhiroMaeharaandMichioKitaharafortheirextensiveas

6、sistanceinmakingtheEnglishversionofthispaper,andTakujiKawamotoforcompilingfigures.TheopinionsexpressedinthispaperarethoseoftheauthoranddonotnecessarilyreflectthoseoftheBankofJapan.157I.IntroductionA.QuestionsRegardingtheConductofMonetaryPolicyTheJapaneseeconomyhasrecentlybeenfacedwith

7、massivenonperformingassetsandalargeoutputgap.TheexperienceoftheU.S.duringtheGreatDepressionhasmadenotafewsuggestthattheBankofJapan(BOJ)shouldhavedonemoreintermsofmonetarypolicygiventheextremelydifficultsituation.However,inJapan,boththeconsumerpriceindex(CPI)andtheGDPdeflatorhavesofarb

8、eenst