Abstract
This paper analyzes the switch in monetary control procedures by the Bank of Japan toward a so-called ‘money-focused’ monetary policy in the mid-1970s. The extent to which monetary control under the new regime has been limited by an exchange rate objective is examined. Through estimation of an explicit Bank of Japan (BoJ) reaction function, we find evidence that the BoJ operating instrument has been systematically manipulated with a view to maintain short-term money control but that this objective has often been dominated by an attempt to moderate yen– dollar exchange rate fluctuations.
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