The Realities and Relevance of Japan’s Great Recession: Neither Ran nor Rashomon
AbstractJapan’s Great Recession was the result of a series of macroeconomic and financial policy mistakes. Thus, it was largely avoidable once the initial shock from the bubble bursting had passed. The aberration in Japan’s recession was not the behaviour of growth, which is best seen as a series of recoveries aborted by policy errors. Rather, the surprise was the persistent steadiness of limited deflation, even after recovery took place. This is a more fundamental challenge to our basic macroeconomic understanding than is commonly recognized. The UK and US economies are at low risk of having recurrent recessions through macroeconomic policy mistakes—but deflation itself cannot be ruled out. The United Kingdom worryingly combines a couple of financial parallels to Japan with far less room for fiscal action to compensate for them than Japan had. Also, Japan did not face poor prospects for external demand and the need to reallocate productive resources across export sectors during its Great Recession. Many economies do now face this challenge simultaneously, which may limit the pace of, and their share in, the global recovery.
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Bibliographic InfoPaper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP10-7.
Date of creation: Jun 2010
Date of revision:
Japan; deflation; fiscal stimulus; quantitative easing;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
This paper has been announced in the following NEP Reports:
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- NEP-CBA-2010-06-18 (Central Banking)
- NEP-FDG-2010-06-18 (Financial Development & Growth)
- NEP-HIS-2010-06-18 (Business, Economic & Financial History)
- NEP-MAC-2010-06-18 (Macroeconomics)
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