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Explain how central banks can produce monetary easing effects. Discuss the Bank of Japan's current strategy...

  1. Explain how central banks can produce monetary easing effects. Discuss the Bank of Japan's current strategy to attain the price stability target (What is the numerical definition of the Bank of Japan's price stability target?). Show your own evaluation on the strategy.
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Answer #1

Central banks pursue monetary easing through reducing interest rates, cash reserve ratio, statutory liquidity ratio and buying back government securities to inject liquidity.

Bank of Japan has pursued negative interest rate regime so people are penalised on savings and thus giving fillip to consumption and infusing liquidity which boosts aggregate demand and thus eliminates deflation and recessionary effects.

Numerically, price stability is within +/- 2% range of average inflation.

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