Monetary control, interest rates and exchange rates: the case of Japan, 1973-1986

Michael Hutchison

No 86-08, Working Papers in Applied Economic Theory from Federal Reserve Bank of San Francisco

Abstract: This paper analyzes the extent to which Japan's success at maintaining a low and stable inflation rate since the mid-1970s, while avoiding a major recession, is attributable to a switch in monetary control procedures by the Bank of Japan toward a so-called \"money focused\" monetary policy. Through estimation of an explicit Bank of Japan (BoJ) reaction function and using the vector autoregressions methodology, we find that little of the variation in the BoJ operating instrument is associated with an attempt to maintain money aggregates growth along a predetermined path. We do find, however, that the BoJ has systematically directed policy in an attempt to moderate yen-dollar exchange rate fluctuations.

Keywords: Japan; Monetary policy - Japan (search for similar items in EconPapers)
Date: 1986
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