This paper offers a brief summary of non-traditional monetary policy measures
currently adopted by G7 central banks and their provisional evaluation in the light of the
Bank of Japan (BOJ)'s experience during the period of 1998-2006. The paper points out
that although unprecedented measures seem to have been adopted by major central
banks since 2007, many of them have been tried in one way or another in earlier
episodes of financial crises, especially by the BOJ during 1998-2006 and are in this
sense not new. We summarize the BOJ's and G7 central banks' policies based on a
typology of policies that can be used even when interest rates are very low.
Non-traditional policy measures can be classified into managing interest rate
expectations, targeted asset purchases and quantitative easing, all of which were used by
the BOJ. The so-called credit easing can be considered to be a part of targeted asset
purchases. In the current episode, targeted asset purchases or credit easing has been
employed by most central banks, while expectations management and (strong forms of)
quantitative easing have not been widely used. We explore reasons for such a choice of
policy strategy in the current period. In addition, some important lessons can be learned
about the effectiveness of non-traditional policies from what the BOJ and the Japanese
government did and did not do during the early to mid 1990s and its ultimate failure to
avoid deflation.
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