The Zero-Interest-Rate Bound and the Role of the Exchange Rate for Monetary Policy in Japan

By Guenter Coenen, Volker Wieland. Social Science Research Network, 2003

226 citations recorded by the source corpus.

In this paper we study the role of the exchange rate in conducting monetary policy in an economy with near-zero nominal interest rates as experienced in Japan since the mid-1990s. Our analysis is based on an estimated model of Japan, the United States and the euro area with rational expectations and nominal rigidities. First, we provide a quantitative analysis of the impact of the zero bound on the effectiveness of interest rate policy in Japan in terms of stabilizing output and inflation. Then we evaluate three concrete proposals that focus on depreciation of the currency as a way to ameliorate the effect of the zero bound and evade a potential liquidity trap. Finally, we investigate the international consequences of these proposals.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/bfb64ae101195a9f7b4f86f2ea00331855c1b90f

Citations in the corpus

• Limitations on the Effectiveness of Forward Guidance at the Zero Lower Bound (2012, unknown): “Several early studies focused on the use of simple feedback rules for conducting monetary policy at or near the ZLB; see Wolman (1998), Reifschneider and Williams (2000), and Coenen and Wieland (2003).”
• Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others (2003, unknown): “The net effect on the trade balance may therefore be quite small, as indicated by simulations in Coenen and Wieland (2003) and McCallum (2003).”
• Quantifying and Sustaining Welfare Gains from Monetary Commitment (2007, unknown): “A number of papers have studied optimal commitment policy with this constraint (for example, Coenen and Wieland (2003), Eggertsson and Woodford (2003), Woodford (2003), chapter 6).”
• Optimal Monetary Policy under Commitment with a Zero Bound on Nominal Interest Rates (2006, unknown): “Similarly, Coenen, Orphanides, and Wieland (2004) report negative level effects for a forward-looking model considering Taylor-type interest rate rules, rather than optimal policy as in this paper.”
• Real Effects of Quantitative Easing at the Zero-Lower Bound: Structural VAR-Based Evidence from Japan (2011, unknown): “Within the theoretical literature on monetary policy at the ZLB the role of the exchange rate in the transmission of unconventional policy has been stressed by a number of studies (Orphanides and Wieland, 2000; Coenen and Wieland, 2003; McCallum, 2000).”
• New Keynesian versus Old Keynesian Government Spending Multipliers (2010, unknown): “14 The functional form chosen for the non-negativity constraint is the same as in earlier analysis of the implications of the zero-interest rate floor by Orphanides and Wieland (2000), Coenen, Orphanides and Wieland (2004) and Coenen and Wieland (2003).”
• Zero Bound on Interest Rates and Optimal Monetary Policy (2003, unknown): “To consider what kind of current actions provide useful incentives, it is helpful to analyze 26The numerical analysis by Coenen and Wieland (2003) finds that an exchange-rate policy can be quite effective in creating stimulus when the zero bound is binding.”