The zero-interest-rate bound and the role of the exchange rate for monetary policy in Japan

Volker Wieland and Günter Coenen

No 218, Working Paper Series from European Central Bank

Abstract: In this paper we study the role of the exchange rate in conducting monetary policy in an economy with near-zero nominal interest rates as experienced in Japan since the mid-1990s. Our analysis is based on an estimated model of Japan, the United States and the euro area with rational expectations and nominal rigidities. First, we provide a quantitative analysis of the impact of the zero bound on the effectiveness of interest rate policy in Japan in terms of stabilizing output and inflation. Then we evaluate three concrete proposals that focus on depreciation of the currency as a way to ameliorate the effect of the zero bound and evade a potential liquidity trap. Finally, we investigate the international consequences of these proposals. JEL Classification: E31, E52, E58, E61

Keywords: exchange rates; liquidity trap; monetary policy rules; monetary transmission; nominal rigidities; rational expectations; zero interest rate bound (search for similar items in EconPapers)
Date: 2003-03
Note: 241047
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (144)

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Related works:
Journal Article: The zero-interest-rate bound and the role of the exchange rate for monetary policy in Japan (2003)
Working Paper: The Zero-Interest Rate Bound and the Role of the Exchange Rate for Monetary Policy in Japan (2003)
Working Paper: The Zero-Interest-Rate Bound and the Role of the Exchange Rate for Monetary Policy in Japan (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2003218

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