It is well known that monetary policy aimed at fixing the market interest rate faces difficulties in controlling the money supply and the inflation rate. The difficulties are augmented under the zero interest rates, because the association between the money supply and the price level becomes much looser than normal.
Therefore, it is all the more important for the central bank to provide the price stability anchor to the market.3 Moreover, the zero bound on the nominal interest rate erodes the market mechanism in the financial market as well as market discipline, thereby distorting the allocation of funds on the market.