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Monetary Policy Under the Zero Interest Rate Constraint and Balance Sheet Adjustment

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  • Masaaki Shirakawa

Abstract

There are two contrasting evaluations of the conduct of Japan's monetary policy since the early 1990s. One is that monetary policy has not been eased enough to promote economic recovery in Japan. The other is that, since monetary policy has already been substantially eased, further easing would not contribute to economic recovery, but would rather delay the progress of structural reform that is a prerequisite for sustainable economic growth. With these evaluations in mind, this paper examines the effect of monetary policy in general and the effect of so‐called ‘quantitative easing’ in particular when nominal short‐term interest rates are zero and balance sheet adjustment is in progress.

Suggested Citation

  • Masaaki Shirakawa, 2001. "Monetary Policy Under the Zero Interest Rate Constraint and Balance Sheet Adjustment," International Finance, Wiley Blackwell, vol. 4(3), pages 463-489.
    • Handle: RePEc:bla:intfin:v:4:y:2001:i:3:p:463-489
    DOI: 10.1111/1468-2362.00082
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    Cited by:

    1. Jorg Bibow, 2004. "Fiscal Consolidation: Contrasting Strategies & Lessons From International Experiences," Economics Working Paper Archive wp_400, Levy Economics Institute.
    2. Baba, Naohiko & Nishioka, Shinichi & Oda, Nobuyuki & Shirakawa, Masaaki & Ueda, Kazuo & Ugai, Hiroshi, 2005. "Japan's Deflation, Problems in the Financial System, and Monetary Policy," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 23(1), pages 47-111, February.
    3. Robert N McCauley & Kazuo Ueda, 2009. "Government debt management at low interest rates," BIS Quarterly Review, Bank for International Settlements, June.
    4. Rishi Goyal & Ronald McKinnon, 2003. "Japan's Negative Risk Premium in Interest Rates: The Liquidity Trap and the Fall in Bank Lending," The World Economy, Wiley Blackwell, vol. 26(3), pages 339-363, March.
    5. Floro, Danvee & Tesfaselassie, Mewael F., 2013. "Can forward guidance be ambiguous yet effective?," Kiel Policy Brief 65, Kiel Institute for the World Economy (IfW Kiel).
    6. Mishra, Ajay Kumar & Parikh, Bhavik & Spahr, Ronald W., 2020. "Stock market liquidity, funding liquidity, financial crises and quantitative easing," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 456-478.

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