Does Excess Liquidity Pose a Threat in Japan?

Author/Editor:

Gauti B. Eggertsson ; Jonathan David Ostry

Publication Date:

April 1, 2005

Electronic Access:

Free Full Text (PDF file size is 392 KB).Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Policy Dicussion Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper examines the effects of quantitative easing implemented by the Bank of Japan (BoJ) since early 2001, looking specifically at the impact on inflation expectations and real asset prices. It suggests a number of possible channels through which quantitative easing may have exerted influence, and reviews some of the empirical evidence linking open market operations and long-term bond purchases to real yields and other asset prices. It argues that quantitative easing has had smaller effects on nominal and real variables than desired, mainly because the BoJ has not succeeded in credibly communicating its policy intentions once the zero bound on short-term rates ceases to be binding. It argues that setting clear goals for inflation and a return to interest rate targeting are not only key elements of a successful strategy to avoid deflation, but are also essential to pin down expectations and avoid instability once deflation wanes.

Series:

Policy Discussion Paper No. 05/5

Subject:

English

Publication Date:

April 1, 2005

ISBN/ISSN:

9781451975666/1934-7456

Stock No:

PPIEA2005005

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

27

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