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Japan's Lost Decade: Does Money have a Role?

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  • Canova, Fabio
  • Menz, Tobias

Abstract

We study the contribution of the stock of money to the macroeconomic outcomes of the 1990s in Japan using a small scale structural model. Likelihood-based estimates of the parameters are provided and time stabilities of the structural relationships analyzed. Real balances are statistically important for output and inflation fluctuations and their role has changed over time. Models which give money no role give a distorted representation of the sources of cyclical fluctuations. The severe stagnation and the long deflation are driven by different causes.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7608.

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Date of creation: Dec 2009
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Handle: RePEc:cpr:ceprdp:7608

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Keywords: deflation; Japan's Lost decade; money; structural model;

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  1. R. Anton Braun & Yuichiro Waki, 2005. "Monetary Policy during Japan's Lost Decade," CARF F-Series CARF-F-035, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  2. Jordi GalĂ­, 2008. "Introduction to Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework
    [Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Ke
    ," Introductory Chapters, Princeton University Press.
  3. Takatoshi Ito & Frederic S. Mishkin, 2006. "Two Decades of Japanese Monetary Policy and the Deflation Problem," NBER Chapters, in: Monetary Policy with Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 131-202 National Bureau of Economic Research, Inc.
  4. Yongsung Chang & Taeyoung Doh & Frank Schorfheide, 2006. "Non-stationary hours in a DSGE model," Working Papers 06-3, Federal Reserve Bank of Philadelphia.
  5. Inoue, Tomoo & Okimoto, Tatsuyoshi, 2008. "Were there structural breaks in the effects of Japanese monetary policy? Re-evaluating policy effects of the lost decade," Journal of the Japanese and International Economies, Elsevier, vol. 22(3), pages 320-342, September.
  6. Kenn Ariga & Fumio Hayashi & Charles Horioka, 2006. "Introduction," The Japanese Economic Review, Japanese Economic Association, vol. 57(2), pages 157-160.
  7. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
  8. Diego A. Comin, 2008. "An Exploration of the Japanese Slowdown during the 1990s," NBER Working Papers 14509, National Bureau of Economic Research, Inc.
  9. Fabio Canova, 2009. "What Explains The Great Moderation in the U.S.? A Structural Analysis," Journal of the European Economic Association, MIT Press, vol. 7(4), pages 697-721, 06.
  10. Evans, Charles L., 1992. "Productivity shocks and real business cycles," Journal of Monetary Economics, Elsevier, vol. 29(2), pages 191-208, April.
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Cited by:
  1. Nakashima, Kiyotaka & Saito, Makoto, 2012. "On the comparison of alternative specifications for money demand: The case of extremely low interest rate regimes in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 26(3), pages 454-471.

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