Do the Bank of Japan’s Unconventional Monetary Policies Decrease Real Interest Rates under a Zero Lower Bound?

To test Paul Krugman’s pioneering proposal for escaping from liquidity traps, this study examines whether unconventional monetary policies under a zero lower bound decrease real interest rates in Japan. We find a sizable decline in real interest rates under zero interest rate policy and Abenomics monetary policy. In addition, we find no significant decline in real interest rates under other unconventional monetary policies, such as the first quantitative easing and comprehensive monetary easing.