Abstract
A major feature of recent monetary policy in Japan has been heavy reliance on the so-called policy duration effect. This policy employs a commitment to compensate for the central bank’s inability to lower the interest rate below zero by altering the anticipated course of monetary policy actions. This paper analyzes the behavior of the yield curve and examines the effectiveness and limitations of monetary policy commitment under zero interest rates with four indicators for policy duration effect. Specifically, we extend our previous study (Okina and Shiratsuka (2003)) by applying wavelet analysis to indicators for policy duration effect. As in the previous study, the policy duration effect was found to be highly effective in stabilizing market expectations for the path of short-term interest rates, thereby reducing longer-term interest rates and flattening the yield curve. The policy duration effect, however, failed to reverse deflationary expectations in financial markets.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
