In the conduct of monetary policy, there exists a risk-return trade-off between financial conditions and financial stability, which complements monetary policy’s traditional trade-off between inflation and real activity. The trade-off exists even if monetary policy does not target financial...

We estimate a two-country open economy version of the New Keynesian DSGE model for the U.S. and the Euro area, using Bayesian techniques that allow for both determinacy and indeterminacy of the equilibrium. Our empirical analysis shows that the worldwide equilibrium is indeterminate due to a...

This paper integrates an asset price bubble and agency costs in firms' price-setting decisions into a monetary DSGE framework. Amplified by nominal wage rigidities, an asset price bubble causes an inefficiently excessive boom. Inflation, however, remains moderate in the boom, because a loosening...

Recent empirical literature suggests that the degree of nominal rigidities varies over monetary policy regimes. This implies that monetary policy analysis with exogenously given nominal rigidities is subject to the Lucas critique. In a Calvo-style sticky price model, we endogenize nominal...

This paper quantitatively evaluates a steady-state inflation rate that is considered desirable from the perspective of social welfare, using a model describing the Japanese economy. Specifically, it begins by setting out points concerning the costs and benefits that accompany inflation. We build...

To what extent did the Bank of Japan's liquidity facilities for corporate financing reduce commercial paper (CP) issue-rates in Japan? To answer this question, we propose a simple structural model that illustrates the market for the CP operations and their effects on the CP primary market. Based...

Recent studies show that the Taylor rule possesses desirable properties in terms of generating determinacy and E-stability of rational expectations equilibria under sticky prices. This paper examines whether this policy rule retains these properties within a discrete-time...

Using a model of island economy where financial markets aggregate dispersed information of the public, we analyze how two-way communication between the central bank and the public affects inflation dynamics. When inflation target is observable and credible to the public, markets provide the bank...

To what extent did the Bank of Japan's liquidity provisions reduce the premium on money market rates over the year-ends in Japan? To answer this question, we propose a simple structural model that illustrates the year-end operations and the year-end interbank money markets. Based on the...

Standard theoretical models predict that higher inflation expectations generate greater current consumer spending at the zero lower bound of interest rates. However, a recent empirical study using US micro data finds negative results for this relationship. We use micro data for Japan, which has...