Peril of the Inflation Exit Condition

Fumio Hayashi
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Fumio Hayashi: National Graduate Institute for Policy Studies

The Japanese Economic Review, 2019, vol. 70, issue 1, No 1, 4-27

Abstract: Abstract Recent empirical evidence on monetary policy in Japan suggests that exits from the zero-interest-rate policy triggered by policy shocks can be expansionary. This paper provides theoretical examples of such expansionary policy-induced exits. The examples suggest that the exit condition (the Bank of Japan’s stated commitment of not exiting from the zero-rate regime unless the inflation rate rises above a certain threshold) may have made it difficult for the economy to escape from the liquidity trap.

Keywords: E58; E52; C32 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1111/jere.12218

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