Japanese monetary policy and deflation

From: Economic Quarterly - Federal Reserve Bank of Richmond | Date: July 1, 2003| Author: Hetzel, Robert L | Copyright information

Japan is experiencing deflation. Its price level (measured by the GDP deflator) fell about 10 percent from the end of 1997 to the end of 2002. The Bank of Japan (BoJ) possesses the power to end deflation and restore price stability by creating money. To do so, the BoJ needs to adopt a policy of active reserves creation where reserves creation depends upon misses of a target either for money growth or for the price level. With its present policy of demand-driven reserves creation, the BoJ limi...

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