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The effectiveness of Japan's Negative Interest rate policy

Naoyuki Yoshino (), Farhad Taghizadeh Hesary and Hiroaki Miyamoto Miyamoto

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the effect of zero and negative interest rate policy of Japan on the inflation rate and the role of exchange rate in conducting the zero and negative interest rate policy. The disappointing economic performance thus seems primarily due to a series of adverse economic shocks rather than an extraordinary policy error. The empirical analysis is based on, primarily, a stylized VAR model of the Japanese economy with the innovation that the interest rate policy, and the exchange rate—two important parameters for assessing the stance of monetary policy—are allowed to vary over time. Secondly, the estimated VAR model investigates whether alternative interest-rate policy approaches proposed in the literature could have improved macroeconomic performance. Though, Granger causality method has been used in the earlier literature to measure the causation of interest rate on inflation rate and it also used to see the block and instantaneous causality between the systems of variables. Next, using an estimated structural model, I identified a number of adverse shocks occurring after the 1990s. It thus follows that int. rate policy was not solely responsible for the stimulation neither in inflation growth performance nor in increasing the output growth. Aiming for a low inflation level and responding to the economy according to a conventional policy rule provided insufficient insurance against the contractionary shocks that occurred over the 1990s.

Keywords: VAR; Generalized and Orthogonalized impulse response; Granger causality; Unit root test (search for similar items in EconPapers)
JEL-codes: E4 E44 E60 F41 F45 (search for similar items in EconPapers)
Date: 2018-05-16, Revised 2018-05-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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https://mpra.ub.uni-muenchen.de/88084/8/MPRA_paper_88084.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/89442/8/MPRA_paper_88084.pdf revised version (application/pdf)

Related works:
Working Paper: The Effectiveness of Japan’s Negative Interest Rate Policy (2017) Downloads
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