Macroeconomic Policy in Japan
AbstractThis paper explores the composition of the macroeconomic policy packages that would be effective in stimulating the Japanese economy. An empirical econometric model is used to predict the consequences of a monetary stimulus consisting of an open-market purchase of government bonds by the Bank of Japan combined with the announcement and implementation of inflation targeting in Japan. The paper also compares the impacts of permanent, temporary, and phased fiscal adjustments. The model predicts that monetary policy would be effective in stimulating the Japanese economy through causing a depreciation of the yen. Similarly, a substantial fiscal consolidation in Japan would be only mildly contractionary for the first two years but then would yield substantial long-term benefits to the Japanese economy. Combining a credible fiscal contraction that is phased in over three years with an inflation target would be likely to provide a powerful macroeconomic stimulus to the Japanese economy, through a weaker exchange rate and lower long-term real interest rates, and would sustain higher growth in Japan for a decade. Thus, a switch in the macroeconomic policy mix toward a loose monetary policy (e.g., setting inflation targets between 2 and 3 percent) and a tight fiscal policy is likely to be an important part of a successful package of reforms to raise Japanese productivity growth over the coming years. Copyright (c) 2002 Center for International Development at Harvard University and Massachusetts Institute of Technology.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by MIT Press in its journal Asian Economic Papers.
Volume (Year): 1 (2002)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://mitpress.mit.edu/journals/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karie Kirkpatrick).
If references are entirely missing, you can add them using this form.