Bayoumi, Tamim (2000) “Where Are We Going? The Output Gap and Potential Growth,” in Tamim Bayoumi and Charles Collyns (eds.), Post-Bubble Blues: How Japan Responded to Asset Price Collapse, IMF.
Bernanke, Ben S., “Japanese Monetary Policy: A Case of Self-Induced Paralysis,” revised version of paper presented at the AEA meetings, January 2000.
Hayakawa, Hideo and Eiji Maeda (2000), Understanding Japan’s Financial and Economic Developments since Autumn 1997, Bank of Japan, Research and Statistics Department, Working Paper 00–1, January.
Krugman, Paul R., “It’s Baaack: Japan’s Slump and the Return of the Liquidity Trap,” Brookings Papers on Economic Activity, 2, pp. 137–205, 1998.
Mori, Naruki, Shigenori Shiratsuka, and Hiroo Taguchi (2000), Policy Responses to the Post-Bubble Adjustments in Japan: A Tentative Review, Bank of Japan, Institute for Monetary and Economic Studies, Discussion Paper No. 2000-E-13, May.
Svensson, Lars, E.O., “The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap” IMES, Bank of Japan, July 2000.
Taylor, John B. (1993), “Discretion versus Policy Rules in Practice,” Carnegie-Rochester Conference Series on Public Policy, Vol. 39, pp. 195–214.
Prepared by James Morsink (ext, 37875).
The current monetary policy guideline is as follows: “The BOJ will flexibly provide ample funds and encourage the uncollateralized overnight call rate to move as low as possible.”
In its statement, the Policy Board said that it was concerned about the rapid appreciation of the yen, but noted that the exchange rate was not an objective of monetary policy and that it was too early to reach any conclusions about the impact of the appreciation. The statement also reiterated that increased liquidity injections would simply be accumulated as excess funds at money market brokers and that any effect of additional liquidity injections on market expectations would be small and temporary.
The ceiling is equivalent to 12 percent of the monetary base as of end-May 2000. The BOJ certainly has the instruments to absorb this amount of liquidity, if necessary.
The BoJ’s policy is to adjust its holdings of long-term government securities in line with changes in the demand for currency, including through regular purchases of government bonds (so-called rinban operations).
We use the IMF’s standard measure of potential output in Japan, which is based on a Cobb-Douglas production function. For a discussion of the advantages and disadvantages of different measures of potential output in Japan, see Bayoumi (2000).
The second quarter of 1991 is taken as the base period, which pins down the target inflation rate in the Taylor rule. The formula is: R*(t) = (1−λ) [α (π (t) − π*) + β GAP(t) ] + λR(t−1) where R is the actual call rate, R* is the desired call rate, π is year-on-year CPI inflation (adjusted for changes in administered prices and indirect taxes), π* is target inflation, and GAP is the output gap.
The adjusted data are not shown in Figure 7 because they are only available starting in October 1998.
Eligibility for loan guarantees was tightened in April 2000: firms applying for loan guarantees are now required to submit a business plan.