
Contents
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4.1 Introduction 4.1 Introduction
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4.2 Monetary Policy and the Bubble 4.2 Monetary Policy and the Bubble
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4.2.1 Bubble and Burst 4.2.1 Bubble and Burst
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4.2.2 Bubble Overkill? 4.2.2 Bubble Overkill?
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4.2.3 Asset Prices and Monetary Policy 4.2.3 Asset Prices and Monetary Policy
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4.3 New Bank of Japan 4.3 New Bank of Japan
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4.3.1 Monetary Policy of the Hayami Regime, 1998–2003 4.3.1 Monetary Policy of the Hayami Regime, 1998–2003
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4.3.2 Assessment of the Hayami Regime 4.3.2 Assessment of the Hayami Regime
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4.3.3 Fukui Regime 4.3.3 Fukui Regime
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4.4 Why Taylor Rules Are Not the Way to Assess Japanese Monetary Policy 4.4 Why Taylor Rules Are Not the Way to Assess Japanese Monetary Policy
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4.5 How Costly is Deflation? 4.5 How Costly is Deflation?
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4.5.1 Deflation and the Labor Market 4.5.1 Deflation and the Labor Market
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4.5.2 Deflation, Wealth Redistribution, and Financial Instability 4.5.2 Deflation, Wealth Redistribution, and Financial Instability
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4.5.3 Deflation, the Zero Bound for Nominal Interest Rates, and Increasing Difficulties in Conducting Monetary Policy 4.5.3 Deflation, the Zero Bound for Nominal Interest Rates, and Increasing Difficulties in Conducting Monetary Policy
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4.5.4 Productivity-Driven Deflation 4.5.4 Productivity-Driven Deflation
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4.5.5 Bottom Line on the Costs of Deflation 4.5.5 Bottom Line on the Costs of Deflation
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4.6 Deflation Prevention 4.6 Deflation Prevention
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4.6.1 Inflation Targeting 4.6.1 Inflation Targeting
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4.6.2 What is the Optimal Level of Inflation? 4.6.2 What is the Optimal Level of Inflation?
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4.6.3 Price-Level Versus Inflation Target? 4.6.3 Price-Level Versus Inflation Target?
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4.7 Deflation Cures 4.7 Deflation Cures
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4.7.1 Price-Level Targets 4.7.1 Price-Level Targets
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4.7.2 Nonconventional Monetary Policy 4.7.2 Nonconventional Monetary Policy
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Quantitative Easing Quantitative Easing
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Open Market Operations in Long-Term Bonds Open Market Operations in Long-Term Bonds
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Foreign Exchange Intervention Foreign Exchange Intervention
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Open Market Purchase of Private, Real Assets Open Market Purchase of Private, Real Assets
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4.8 Concluding Remarks 4.8 Concluding Remarks
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References References
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Comment Comment
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References References
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Comment Comment
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References References
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4 Two Decades of Japanese Monetary Policy and the Deflation Problem
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Published:October 2006
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Abstract
This chapter reports a long comprehensive survey of Japanese monetary policy over the last two decades: the period of bubble and burst (1985–1997) and the issue under the new law of the Bank of Japan (BOJ) (1998-). It explores the monetary policy actions to prevent deflation. Given that a bubble is created, the effects from the bursting of the bubble could be moderated by monetary policy. The recent history of Japanese monetary policy has created problems for the Japanese monetary authorities today. These problems present the bank with particular challenges in getting the economy out of deflation quickly. Monetary policy becomes more difficult during deflationary episodes when interest rates hit a floor of zero. Management of expectations through adoption of a price-level target, and nonconventional policies that employ central bank purchases of other assets besides short-term bonds are the key elements of strategies to cure deflation.
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