The Zero Interest Rate Floor (ZIF) and its Implications for Monetary Policy in Japan

Douglas Laxton and Benjamin Hunt

No 2001/186, IMF Working Papers from International Monetary Fund

Abstract: This paper uses the IMF's macroeconomic model MULTIMOD to examine the implications of the zero-interest-rate floor (ZIF) for the design of monetary policy in Japan. Similar to findings in other studies, targeting rates of inflation lower than 2.0 percent significantly increases the likelihood of the ZIF becoming binding. Systematic monetary policy strategies that respond strongly to stabilize output and inflation, or that incorporate some explicit price-level component, can help to mitigate the implications of the ZIF.

Keywords: WP; price index; monetary policy; inflation rate; Monetary policy rules; liquidity trap; potential output; uncertainty; price level; one-off fiscal policy; monetary policy intervention; rate of inflation; fiscal policy action; price-level rule; Inflation targeting; Inflation; Real interest rates; Output gap (search for similar items in EconPapers)
Pages: 37
Date: 2001-11-01
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Citations: View citations in EconPapers (16)

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Journal Article: The Zero Interest Rate Floor (ZIF) and its Implications for Monetary Policy in Japan (2004)
Journal Article: The Zero Interest Rate Floor (ZIF) and its Implications for Monetary Policy in Japan (2004)
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