Reviewing US Monetary Policy in Disinflation Era: A Primer

Ryo Kato and Yoko Takeda
Additional contact information
Ryo Kato: Bank of Japan
Yoko Takeda: Bank of Japan

No 04-E-13, Bank of Japan Working Paper Series from Bank of Japan

Abstract: This paper reviews the experience of US monetary policy from 2000 to shed some light on issues regarding the effectiveness of monetary policy in a low inflation era. Our analysis is twofold. First, based on a simple inflation forecast targeting model introduced in Svensson (1997) and Kato and Nishiyama (2002) as its variant, we demonstrate that the actual federal funds rate closely followed its optimal path predicted by the model from the late 90s to mid-2003. Second, we examine the response of long-term interest rates or an implied forward curve to FOMC's policy changes by employing a version of the new IS/LM model. The result shows that the observed financial market response to the FOMC's statement released in August 2003 can be no less consistent with an effective change in the expectation of the degree of interest rate inertia than a failed policy commitment. Our simulation suggests that we cannot conclude that the Fed's commitment was ineffective during the recent phase of stagnation.

JEL-codes: C6 E4 E5 (search for similar items in EconPapers)
Date: 2004-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.boj.or.jp/en/research/wps_rev/wps_2004/data/wp04e13.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boj:bojwps:04-e-13

Access Statistics for this paper

More papers in Bank of Japan Working Paper Series from Bank of Japan Contact information at EDIRC.
Bibliographic data for series maintained by Bank of Japan ().