the-strange-new-world-of-zirp-and-qe

The strange new world of ZIRP and QE

The US and Japan are adopting identical policies of zero interest rates and quantitative easing, despite having opposite problems. Success is not guaranteed in either case.

By Dan Slater

December 18, 2008

ItÆs hard to understand how ZIRP zero interest rate policy and QE quantitative easing can apply to a country with low overall indebtedness and a current account surplus, like Japan, and yet be adopted by a country with high indebtedness and a current account deficit, like the US. But that seems to be the mysterious convergence occurring between the largest and second-largest economies in the world.

In the case of Japan, domestic observers feel little confidence that such measures will boost the economy. ZIRP and QE were not able to reverse deflation in the past, and it was exports that dragged Japan out of its recession from 2002 onwards, pushing the country to its...

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