The effects of zero interest rate commitment in Japan

Abstract

This article examines the effectiveness of the Bank of Japan's Zero Interest Rate Commitment Policy (ZIRCP). Using the Exponential Autoregressive Conditional Heteroskedasticity model, we present an empirical analysis of the volatility of return on Japanese interest rates for the short-, medium-, long- and super long-term. We find that each interest rate is affected by the ZIRCP. However, the ZIRCP stabilizes the daily change for only the super long-term interest rate. This suggests that the ZIRCP effect includes the decrease in interest rate and the reduction in super long-term variability.