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Monetary Policy with Very Low Inflation in the Pacific Rim

Extremely low inflation rates have moved to the forefront of monetary policy discussions. In Asia, a number of countries—most prominently Japan, but also Taiwan and China—have actually experienced deflation over the last fifteen years. Monetary Policy with Very Low Inflation in the Pacific Rim explores the factors that have contributed to these circumstances and forecasts some of the potential challenges faced by these nations, as well as some potential solutions.
The editors of this volume attribute low inflation and deflation in the region to a number of recent phenomena. Some of these episodes, they argue, may be linked to rapid growth on the supply side of economies. Here, inadequate demand policy can produce what is referred to as a "liquidity trap" in which the expectation of falling prices encourages agents to defer costly purchases, thereby discouraging growth. Low inflation rates can also be traced to the presence of a "zero-lower bound" on interest rates, as well as the inflation-targeting phenomenon. Targets have been set so low, the editors argue, that in some cases a few bad shocks lead to deflation.

Table of Contents



Takatoshi Ito and Andrew K. Rose

I. Monetary Policy Strategies

1. A Monetary Policy Rule for Automatic Prevention of a Liquidity Trap

Bennett T. McCallum
Comment: James Harrigan


2. Monetary Policy, Asset-price Bubbles, and the Zero Lower Bound

Tim Robinson and Andrew Stone

Comment: Piti Disyatat

Comment: Kenneth Kuttner

3. Money Growth and Interest Rates

Seok-Kyun Hur

Comment: R. Anton Braun

Comment: Yuzo Honda

II. The Japanese Experience

4. Two Decades of Japanese Monetary Policy and the Deflation Problem

Takatoshi Ito and Frederic S. Mishkin

Comment: Kenneth Kuttner

Comment: Kazuo Ueda

5. Financial Strains and the Zero Lower Bound: The Japanese Experience

Mitsuhiro Fukao

Comment: Piti Disyatat

Comment: James Harrigan

6. Monetary and Fiscal Policy in a Liquidity Trap: The Japanese Experience 1999–2004

Mitsuru Iwamura, Takeshi Kudo, and Tsutomu Watanabe

Comment: Fumio Hayashi

7. Fiscal Remedies for Japan’s Slump

Laurence Ball

Comment: Mitsuru Iwamura

III. Case Studies

8. Stock Market Liquidity and the Macroeconomy: Evidence from Japan

Woon Gyu Choi and David Cook

Comment: Shin-ichi Fukuda

Comment: Makoto Saito

9. Interest Rate, Inflation, and Housing Price: With an Emphasis on Chonsei Price in Korea

Dongchul Cho

Comment: Toshiki Jinushi

Comment: Mario B. Lamberte

10. Deflation and Monetary Policy in Taiwan

Ya-Hwei Yang and Jia-Dong Shea

Comment: Toshiki Jinushi

Comment: Shigenori Shiratsuka


Author Index

Subject Index

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