Central Bank Credibility During COVID-19: Evidence from Japan

Jens Christensen and Mark Spiegel

No 2021-24, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Japanese realized and expected inflation has been below the Bank of Japan’s two percent target for many years. We examine the impact of announcements of expansionary monetary and fiscal policy under COVID-19 on inflation expectations from an arbitrage-free term structure model of nominal and real yields. We find that both types of policies failed to lift inflation expectations, which instead declined notably over the pandemic period and are projected to only slowly revert back to Bank of Japan target levels. Our results therefore illustrate the challenges faced in raising well-anchored low inflation expectations.

Keywords: affine arbitrage-free term structure model; unconventional monetary policy; deflation risk; deflation protection (search for similar items in EconPapers)
JEL-codes: C32 E43 E52 G12 G17 (search for similar items in EconPapers)
Pages: 37
Date: 2022-08-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
Note: Original publication date: 12/21/2021.
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Journal Article: Central bank credibility during COVID-19: Evidence from Japan (2023)
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DOI: 10.24148/wp2021-24

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