Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/76538 
Year of Publication: 
2004
Series/Report no.: 
CESifo Working Paper No. 1138
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
A major feature of recent monetary policy in Japan has been heavy reliance on the so-called policy duration effect. This policy employs a commitment to compensate for the central bank's inability to lower the interest rate below zero by altering the anticipated course of monetary policy actions. This paper analyzes the behavior of the yield curve and examines the effectiveness and limitations of monetary policy commitment under zero interest rates with four indicators for policy duration effect. Specifically, we extend our previous study (Okina and Shiratsuka (2003)) by applying wavelet analysis to indicators for policy duration effect. As in the previous study, the policy duration effect was found to be highly effective in stabilizing market expectations for the path of short-term interest rates, thereby reducing longer-term interest rates and flattening the yield curve. The policy duration effect, however, failed to reverse deflationary expectations in financial markets.
Subjects: 
zero interest rate policy
quantitative monetary easing
policy duration effects
policy commitment
wavelet analysis
Document Type: 
Working Paper
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