Working Papers

2021-24 | January 2022


Central Bank Credibility During COVID-19: Evidence from Japan


Japanese realized and expected inflation has been below the Bank of Japan’s two percent target for many years. We use the exogenous COVID-19 pandemic shock to examine the efficacy of monetary and fiscal policy responses for elevating inflation expectations from an arbitrage-free term structure model of nominal and real yields. We find that monetary and fiscal policy announcements during this period failed to lift inflation expectations, which instead declined notably and are projected to only slowly revert back to levels far below the announced target. Hence, our results illustrate the challenges faced in raising well-anchored low inflation expectations.

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Article Citation

Christensen, Jens H. E, and Mark M. Spiegel. 2021. "Central Bank Credibility During COVID-19: Evidence from Japan," Federal Reserve Bank of San Francisco Working Paper 2021-24. Available at