Monetary and Economic Studies Vol.11, No.2 / December 1993

"Specification and Analysis of a Monetary Policy Rule for Japan"

Bennett T. McCallum

This paper investigates the performance, in several small-scale models of the Japanese economy, of an operational monetary policy rule related to ones previously considered for the United States. The rule dictates settings of the monetary base that are designed to produce values of nominal GNP close to targets that grow smoothly at a noninflationary rate. Simulations with quarterly data for the period 1972-92 yield predominantly favorable results. Experiments with an interest rate instrument are also conducted but the simulated performance is less desirable. One section discusses issues concerning monetary base control in Japan.

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 © 1993 Bank of Japan All Rights Reserved.

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