Discussion Paper Series 2004-E-7

Comments on "Price Stability and Japanese Monetary Policy"

Hiroshi Fujiki, Kunio Okina, Shigenori Shiratsuka

This commentary summarizes the authors’ main points of agreement and disagreement with respect to the proposal written by Dr. Hetzel. The authors agree with Dr. Hetzel’s proposal on four points: after a central bank has lowered the interest rate to zero, (i) a central bank is not in fact powerless to stop deflation, (ii) it does not make sense to focus on the quantity of the monetary base per se, (iii) it is important to influence market expectations if monetary policy is to be effective, and (iv) central bank solvency holds some importance. The authors disagree with Dr. Hetzel’s proposal on three points: (i) transmission channels of quantitative easing, (ii) potential costs and benefits of his proposal, and (iii) the timing of introduction of an explicit nominal anchor.

Keywords: quantitative easing, deflation

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

Copyright © 2004 Bank of Japan All Rights Reserved.

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