Lessons At The Zero Lower Bound: The Japanese And US Experience

Central banks have historically implemented monetary policy by buying or selling short term bonds.  That effects short term interest rates which tend to influence longer term interest rates as well.  However, when short term interest rates approach zero, as they are today in the US and Japan, central banks have to use other strategies to achieve their objectives.  The Bank Of Japan and the US Federal Reserve are purchasing a variety of longer term securities to implement monetary policy.  The BOJ is implementing a plan to reverse price deflation, and the Fed has the twin goals of a target inflation rate of 2% and a reduction in the unemployment rate.  This speech by the President of the Federal Reserve Bank of New York, describes the experiences of Japan and the US with monetary policy at the zero lower bound.