Macroeconomic Policy Assessment in an Era of Low Interest Rates -- The Case of Japan

Abstract

How the macroeconomic policies adjust to stimulating economic development after the failure of conventional monetary policy with zero lower bound (ZLB) in the low interest rate era is one of the key topics of research today. Studies have been conducted to summarize or model single policies of macroeconomic policies in some countries since the beginning of the low-interest rate era, however, there is a lack of systematic assessment and generalization of the combination of macroeconomic policies. Therefore, this paper takes Japan as an example and starts from the IS-LM model, combining data on indicators of Japan's macroeconomic performance over the past decade to conduct a systematic assessment of the effectiveness and limitations of both monetary and fiscal policies. The study finds that Quantitative and Qualitative Monetary Easing (QQE), negative interest rate policy (NIRP) and flexible fiscal policy, which are innovative macroeconomic policies with ZLB, are effective in stimulating economic policies, but their long-term performance is poor due to a variety of domestic and international factors. Based on the results of the assessment, the paper also offers some insights into the implementation of macroeconomic policies in an era of low-interest rates.