However, if an economy slips into deflation, my belief is that a sufficiently determined central bank can spur aggregate demand and end the deflation. 2  BIS Review 27/2003  Skeptics may point to Japan, where interest rate cuts and other monetary policy measures have been ineffective in jumpstarting the economy.
The Bank of Japan lowered short-term interest rates considerably over the 1990s, after the bursting of the asset price bubble and against the backdrop of a stagnant economy. The overnight nominal interest rate fell from slightly more than 8 percent in 1991 to 1/2 percent in 1995, where it stayed until being lowered essentially to zero in 1999.