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

November 1, 2001

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Format: Chicago

Douglas Laxton, and Benjamin L Hunt. The Zero Interest Rate Floor (ZIF) and its Implications for Monetary Policy in Japan, (USA: International Monetary Fund, 2001) accessed December 3, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Financial services, Inflation, Inflation targeting, Monetary policy, Output gap, Potential output, Prices, Production, Real interest rates

Keywords: Fiscal policy action, Inflation, Inflation rate, Inflation targeting, Liquidity trap, Monetary policy, Monetary policy intervention, Monetary policy rules, One-off fiscal policy, Output gap, Potential output, Price index, Price level, Price-level rule, Rate of inflation, Real interest rates, Uncertainty, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2001/186
Stock No:

WPIEA1862001
ISBN:

9781451859461
ISSN:

1018-5941

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