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The Zero Interest Rate Floor (ZIF) and its Implications for Monetary Policy in Japan

Author/Editor: Hunt, Ben | Laxton, Douglas
Authorized for Distribution: November 1, 2001
Electronic Access: Free Full Text (PDF file size is 1,276KB)
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Disclaimer: This Working 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 uses the IMF's macroeconomic model MULTIMOD to examine the implications of the zero-interest-rate floor (ZIF) for the design of monetary policy in Japan. Similar to findings in other studies, targeting rates of inflation lower than 2.0 percent significantly increases the likelihood of the ZIF becoming binding. Systematic monetary policy strategies that respond strongly to stabilize output and inflation, or that incorporate some explicit price-level component, can help to mitigate the implications of the ZIF.
 
Series: Working Paper No. 01/186
Subject(s): Interest rates | Japan | Monetary policy | Economic models
Author's keyword(s): Monetary policy rules | liquidity trap | potential output | uncertainity
 
English  
    Published:   November 1, 2001        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA1862001   Pages:   37
    Price:   US$15.00
       
     
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