Monetary and Economic Studies Vol.19, No.1 / February 2001

Monetary Policy under Zero Interest Rate: Viewpoints of Central Bank Economists

Hiroshi Fujiki, Kunio Okina, Shigenori Shiratsuka

Various proposals have been raised with respect to a desirable framework of monetary policy under the zero interest rate in Japan. By taking due account of such proposals, this paper intends to examine monetary policy options under the environment of the zero interest rate. In so doing, we first describe the policy framework of the “zero interest rate policy,” which was in place from February 1999 to August 2000, and its transmission mechanism. Then, in view of the problems intrinsic to the zero interest rate, we address three important questions: (1) the policy options that might be available in response to future economic developments; (2) the major risks associated with these policy options; and (3) how such risks might change under varying economic conditions. On this basis, we finally consider the medium- and long-term “style” of monetary policy in Japan in order to improve its effectiveness and efficiency.

Keywords: Zero interest rate policy; Quantitative easing; Open market operation of outright purchase of long-term government bonds; Dispelling deflationary concern; Styles of monetary policy management

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 © 2001 Bank of Japan All Rights Reserved.

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