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

Published online by Cambridge University Press:  26 March 2020

Benjamin Hunt  and
Douglas Laxton
Douglas Laxton*
Affiliation:
International Monetary Fund
*
e-mail: dlaxton@imf.org
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Abstract

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 per cent significantly increases the likelihood of the ZIF becoming binding. Systematic monetary policy strategies that respond strongly to stabilise output and inflation, or that incorporate some explicit price-level component, can help to mitigate the implications of the ZIF.

Type
Articles
Information
National Institute Economic Review , Volume 187 , January 2004 , pp. 76 - 92
Copyright
Copyright © 2004 National Institute of Economic and Social Research

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Footnotes

The views expressed in this paper are those of the authors and do not necessarily represent those of the International Monetary Fund. The authors would like to thank Charles Collyns, Amadou Dem, Peter Isard, Guy Meredith, Papa N'Diaye and Jonathan Ostry for helpful comments. We are indebted to Susanna Mursula for tireless technical assistance and to Dawn Heaney for preparing the tables and charts.

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