We investigate the relationship between money, short-term interest rates, and scale variables. We use three monetary aggregates: Ml, demand deposits, and cash currency in circulation. Regional cross- sectional data yield stable estimates of the income elasticity of demand deposits that are...

The effects of three different inflationary environments--high inflation, low inflation, and negative inflation--on real output stability are examined by looking at the experiences of Japan and the United States during the last 30 years. I begin by going back to see how things looked from the...

This paper surveys the empirical analyses that examine the effects of the Bank of Japan's (BOJ's) quantitative easing policy (QEP), which was implemented from March 2001 through March 2006. The survey confirms a clear effect whereby the commitment to maintain the QEP fostered the expectations...

In 2004 and 2005, long-term interest rates remained remarkably low despite improving economic conditions and rising short- term interest rates, a situation that then-Federal Reserve Board Chairman Alan Greenspan dubbed a "conundrum." We document the extent and timing of this conundrum using two...

This paper quantifies the policy duration effect of the zero interest rate policy implemented in Japan from February 1999 to August 2000. Our empirical analysis shows that the policy duration effect observed in Japanese financial markets emerged via the expectations channel on the future course...

This paper empirically evaluates the validity of the term structure of interest rates in a low interest rate environment using high-frequency Japanese data. Allowing for the time-varying term premium, we obtain evidence that when interest rates are low and the short end of the term structure is...

Central bankers in the major industrial economies have come close to securing the peace, or in some cases, have secured it in the battle against inflation, hostilities that lasted almost as long as the Cold War. It is important to remember that this battle has been a good fight: both the theory...

This paper offers three analyses of Japan's macroeconomic experience during the post-1990 period. First, we analyze various facets of deflation during the period, arguing that the deflation of general prices has by no means been a major factor for the stagnating economy. In contrast, the...

Invoking the venerable quantity theory of money, Hetzel (2004) argues that central banks are not powerless to end deflation, even when short-term interest rates are zero. While agreeing with his overall conclusion that central banks do possess tools to fight deflation, this commentary points out...

The U.S. deficit in the current account, now running at an annual rate of over US$700 billion, has reached levels (as a percentage of GDP) not seen since the first decades of the 19th century. The deficit is soaking up roughly three-quarters of the world's available external surpluses. If the...