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Is Japan Special? Monetary Linkages and Price Stability

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  • Lohmann, Susanne

    (UCLA)

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    Abstract

    Empirical studies of central bank independence and inflation identify Japan as an outlier. By standard measures, the Bank of Japan is one of the least independent central banks in the world, and yet Japan enjoys some of the lowest inflation rates. This paper develops a model of monetary link; ages with implications for the institutional course stability. The model explains why price stability in the "old" Japan-- with its powerful bureaucracy and single-party rule--did not necessarily rely on monetary institutions. It predicts that the "new" Japan, in which power is shifting from the bureaucracy to elected politicians who compete with each other in the political marketplace, must make use of monetary institutions to achieve price stability.

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    File URL: http://www.imes.boj.or.jp/research/papers/english/me15-2-3.pdf
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    Bibliographic Info

    Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

    Volume (Year): 15 (1997)
    Issue (Month): 2 (December)
    Pages: 63-79

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    Handle: RePEc:ime:imemes:v:15:y:1997:i:2:p:63-79

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    1. Cukierman, Alex & Edwards, Sebastian & Tabellini, Guido, 1992. "Seigniorage and Political Instability," American Economic Review, American Economic Association, vol. 82(3), pages 537-55, June.
    2. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March.
    3. Robert J. Barro & David B. Gordon, 1984. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
    4. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
    5. Lohmann, Susanne, 1993. "Electoral cycles and international policy cooperation," European Economic Review, Elsevier, vol. 37(7), pages 1373-1391, October.
    6. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
    7. Matthew B. Canzoneri, 1983. "Monetary policy games and the role of private information," International Finance Discussion Papers 249, Board of Governors of the Federal Reserve System (U.S.).
    8. Michi Kandori, 2010. "Social Norms and Community Enforcement," Levine's Working Paper Archive 630, David K. Levine.
    9. Manfred Neumann, 1991. "Precommitment by central bank independence," Open Economies Review, Springer, vol. 2(2), pages 95-112, June.
    10. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
    11. Cowhey, Peter F., 1993. "Domestic institutions and the credibility of international commitment: Japan and the United States," International Organization, Cambridge University Press, vol. 47(02), pages 299-326, March.
    12. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
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    Cited by:
    1. Milhaupt, Curtis-J, 1999. "Japan's Experience with Deposit Insurance and Failing Banks: Implications for Financial Regulatory Design?," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(2), pages 21-46, August.

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