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Policy regime change against chronic deflation? Policy option under a long-term liquidity trap

Ippei Fujiwara, Kozo Ueda and Yoshiyuki Nakazono

No 233, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper evaluates the role of the first arrow of Abenomics in guiding public perceptions on monetary policy stance through the management of expectations. In order to end chronic deflation, a policy regime change must be perceived by economic agents. Analysis using the QUICK survey system (QSS) monthly survey data shows that the reaction of monetary policy to inflation has been declining since the mid 2000s, implying intensified forward guidance well before Abenomics. However, Japan seems to have moved closer to a long-term liquidity trap, where even long-term bond yields are constrained by the zero lower bound. Estimated changes in perceptions are not abrupt enough to satisfy Sargent's (1982) criteria for a regime change. This poses a serious challenge to central banks: what is an effective policy option left under the long-term liquidity trap?

JEL-codes: E60 E47 E50 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2015-03-01, Revised 2015-03-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: Published as: Fujiwara, Ippei, Yoshiyuki Nakazono and Kozo Ueda (2015), "Policy Regime Change Against Chronic Deflation? Policy Option Under a Long-term Liquidity Trap," Journal of Japanese and International Economies 37: 59-81.
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Journal Article: Policy regime change against chronic deflation? Policy option under a long-term liquidity trap (2015) Downloads
Working Paper: Policy Regime Change against Chronic Deflation? Policy option under long-term liquidity trap (2014) Downloads
Working Paper: Policy Regime Change against Chronic Deflation? Policy option under a long-term liquidity trap (2014) Downloads
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DOI: 10.24149/gwp233

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