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The End of the Japanese Stagnation: an Assessment of the Policy Solutions

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  • Claudio Morana

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Abstract

After more than a decade of stagnant growth, the Japanese economy is showing signs of full recovery, with deflation also having come to an end. Since the mid 1990s both supply side and demand side policy solutions to the Japanese stagnation have been suggested. By means of a Factor Vector Autoregressive Model, the paper aims to assess whether the real depreciation of the yen and the quantitative easying implemented by the Bank of Japan have contributed to the recovery of the Japanese economy and to halt deflationary dynamics. The results of the paper point to the effectiveness of these latter policies, as well as to the role exercised by domestic productivity improvements and the expansion of world economic activity.

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File URL: http://www.icer.it/docs/wp2006/ICERwp27-06.pdf
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Bibliographic Info

Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 27-2006.

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Length: 25 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:icr:wpicer:27-2006

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Keywords: factor vector autoregression; large scale macroeconometric model; Japan; monetary policy.;

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References

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  1. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Econometric Society World Congress 2000 Contributed Papers 1504, Econometric Society.
  2. Fumio Hayashi & Edward C. Prescott, 2002. "Data Appendix to The 1990s in Japan: A Lost Decade," Technical Appendices hayashi02, Review of Economic Dynamics.
  3. D. Woo, 1999. "In Search of "Capital Crunch" - Supply Factors Behind the Credit Slowdown in Japan," IMF Working Papers 99/3, International Monetary Fund.
  4. Motonishi, Taizo & Yoshikawa, Hiroshi, 1999. "Causes of the Long Stagnation of Japan during the 1990s: Financial or Real?," Journal of the Japanese and International Economies, Elsevier, vol. 13(3), pages 181-200, September.
  5. Kenneth N. Kuttner & Adam S. Posen, 2001. "The Great Recession: Lessons for Macroeconomic Policy from Japan," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2), pages 93-186.
  6. Takeo Hoshi & Anil Kashyap, 2000. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 129-212 National Bureau of Economic Research, Inc.
  7. James H. Stock & Mark W. Watson, 2005. "Implications of Dynamic Factor Models for VAR Analysis," NBER Working Papers 11467, National Bureau of Economic Research, Inc.
  8. Harold L. Cole & Narayana R. Kocherlakota, 1998. "Zero nominal interest rates: why they're good and how to get them," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-10.
  9. Fumio Hayashi & Edward C. Prescott, 2000. "The 1990s in Japan: a lost decade," Working Papers 607, Federal Reserve Bank of Minneapolis.
  10. Bierens, Herman J, 2000. "Nonparametric Nonlinear Cotrending Analysis, with an Application to Interest and Inflation in the United States," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(3), pages 323-37, July.
  11. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
  12. D. Woo & Akihiro Kanaya, 2000. "The Japanese Banking Crisis of the 1990s - Sources and Lessons," IMF Working Papers 00/7, International Monetary Fund.
  13. 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(2), pages 137-206.
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