We wish to thank an anonymous referee, our discussant Franck Portier and participants at the 2004 CIRJE-TCER macro conference and CERGE-EI for their helpful comments. We owe a special thanks to Fumio Hayashi for his many constructive comments. The research of the first author was funded by grant numbers 12124202 and 15530282 from the Japanese Ministry of Education, Culture, Sports, Science and Technology.s
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MONETARY POLICY DURING JAPAN'S LOST DECADE†
Article first published online: 20 JUN 2006
DOI: 10.1111/j.1468-5876.2006.00371.x
Additional Information
How to Cite
BRAUN, R. A. and WAKI, Y. (2006), MONETARY POLICY DURING JAPAN'S LOST DECADE. Japanese Economic Review, 57: 324–344. doi: 10.1111/j.1468-5876.2006.00371.x
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Publication History
- Issue published online: 20 JUN 2006
- Article first published online: 20 JUN 2006
- Final version accepted 6 October 2005.
- Abstract
- References
- Cited By
Keywords:
- E30;
- E50
We develop a quantitative costly price adjustment model with capital formation for the Japanese economy. The model respects the zero interest rate bound and is calibrated to reproduce the nominal and real facts from the 1990s. We use the model to investigate the properties of alternative monetary policies during this period. The setting of the long-run nominal interest rate in a Taylor rule is much more important for avoiding the zero bound than the setting of the reaction coefficients. A long-run interest rate target of 2.3% during the 1990s avoids the zero bound and enhances welfare.