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The Role of Preconceived Ideas in Macroeconomic Policy: Japan's Experiences in the Two Deflationary Periods

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Author Info
Koichi Hamada () (Economic Growth Center, Yale University)
Asahi Noguchi () (Senshu University)
Abstract

This paper examines the role of misleading economic ideas that most likely promoted the economic disasters of the two deflationary periods in Japanese economic history. Misleading ideas deepened the depression during the interwar years, and erroneous thinking prolonged the stagnation of the Japanese economy since the 1990s. While the current framework of political economy is based on the self-interests of political agents as well as of voters, we highlight the role of ideas in policy making, in particular, in the field of macro-economy where the incidence of a particular policy is not clear to the public. Using two significant examples, this paper illustrates the role of preconceived ideas, in contrast to economic interests, that dominantly influenced economic policy making.

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Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 908.

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Length: 58 pages
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:egc:wpaper:908

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Related research
Keywords: Preconceived ideas perception on economic mechanism vested interests great depression deflation in contemporary Japan

Find related papers by JEL classification:
B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
N2 - Economic History - - Financial Markets and Institutions

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  1. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1998-2), pages 137-206. [Downloadable!]
  2. Putnam, Robert D, 1988. "Diplomacy and Domestic Politics: The Logic of Two-Level Games," International Organization, MIT Press, vol. 42(3), pages 427-60, Summer.
  3. Svensson, Lars E O, 2000. "The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap," CEPR Discussion Papers 2566, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Frankel, Jeffrey A & Rockett, Katharine E, 1988. "International Macroeconomic Policy Coordination When Policymakers Do Not Agree on the True Model," American Economic Review, American Economic Association, vol. 78(3), pages 318-40, June. [Downloadable!] (restricted)
  5. Koichi Hamada, 2004. "Policy Making In Deflationary Japan," The Japanese Economic Review, Japanese Economic Association, vol. 55(3), pages 221-239. [Downloadable!] (restricted)
  6. Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, vol. 72(3), pages 307-19, June. [Downloadable!] (restricted)
  7. Jeffrey Frankel, 2003. "What an Economic Adviser Can Do When He Disagrees with the President," Challenge, M.E. Sharpe, Inc., vol. 46(3), pages 29-52, May. [Downloadable!] (restricted)
  8. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring. [Downloadable!] (restricted)
  9. Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August. [Downloadable!] (restricted)
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