Policy commitment and market expectations: Lessons learned from survey based evidence under Japan's quantitative easing policy |
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| Affiliation: | 1. Bank for International Settlements, Representative Office for Asia and the Pacific, 78th Floor, Two IFC, 8 Finance Street, Central, Hong Kong;2. Hitotsubashi University, 2-1 Naka, Kunitachi-shi, Tokyo, 186-8603 Japan;1. The University of Texas at El Paso, El Paso, TX, United States;2. Faculty of Business and Economics, The University of Hong Kong, Hong Kong;1. School of Social Sciences, Waseda University, Japan;2. School of Political Science and Economics, Waseda University, Japan |
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| Abstract: | The Bank of Japan conducted its quantitative easing policy (QEP) from 2001 to 2006, with the policy commitment to maintaining its QEP until the CPI inflation rate became stably zero or higher. We evaluate its effects by using individual survey data on inflation expectations as well as interest rate expectations. Our analysis reveals a kinked relationship between interest rate expectations and inflation rate expectations at around the 0% threshold level of inflation expectations, in tune with this policy commitment. In addition, we evaluate the effects of the policy commitment on market expectations for the future path of short-term interest rates after the termination of the QEP. We find that, even when inflation expectations exceeded the threshold, interest rate expectations responded only gradually to inflation rate expectations. |
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| Keywords: | Commitment policy Policy duration effect Unconventional monetary policy Zero lower bound |
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