Does Central Bank Credibility Effectively Influence the Economy? A Recent Japanese Case
Yutaka Kurihara

This study examines whether or not central bank credibility influences interest rates, stock prices, and prices of goods and services in Japan. The Bank of Japan (BOJ), the Japanese central bank, has set the target inflation rate to 2%, and the departure from the rate is used for credibility and empirical analysis. It should be noted that Japan has experienced severe deflation, and attaining the target rate has been a difficult task. In reality, Japan has not attained the target rate to combat deflation. The empirical results using OLS (Ordinary Least Squared) and GMM (Generalized Method of Moments) show that improved credibility influences the prices but does not impact interest rates and stock prices that could boost the economy. Credibility of the targeted price rate is taken into account in the Japanese financial markets. Credibility is directly related with the price target, but credibility does not cause a decrease in interest rates or an increase in stock prices.

Full Text: PDF     DOI: 10.15640/jibe.v7n1a2