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Japan's Slow-Down: Monetary versus Real Explanations

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  • Wilson, Dominic
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    Abstract

    Two kinds of view about the recent stagnation of the Japanese economy have been particularly popular. The first adopts a "monetary" perspective, arguing that Japan has fallen into a liquidity trap from which only unconventional monetary policy can save it. The second maintains that a large part of Japan's macroeconomic difficulties is structural and related to problems in the "real" side of the economy. We argue here that it is hard to justify a neat division between these real and monetary problems. Declining expectations of future productivity may have depressed real interest rates and reduced monetary policy flexibility, but they are also likely to have prompted real responses that have contributed to stagnation. In the long run, the conclusions of the two kinds of diagnosis are complementary, but in the short term tension may exist, with loose monetary policy weakening incentives for structural reform, and structural adjustment exacerbating demand deficiency. Copyright 2000 by Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

    Volume (Year): 16 (2000)
    Issue (Month): 2 (Summer)
    Pages: 18-33

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    Handle: RePEc:oup:oxford:v:16:y:2000:i:2:p:18-33

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    Cited by:
    1. Boyer, Robert, 2004. "Japon : de la décennie perdue à un improbable New Deal," CEPREMAP Working Papers (Couverture Orange) 0404, CEPREMAP.
    2. Rod Tyers & Ying Zhang, 2011. "Japan’s Economic Recovery: Insights from Multi-Region Dynamics," CAMA Working Papers 2011-18, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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