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Japan Inside the Black Hole


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  • Percy Ip

    (Department of Economics, Macquarie University)

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    When the demand for money is infinitely the interest elastic, injecting base money into the system is akin to money being sucked into a Black Hole. Economics activity will not be revived by driving the rate of interest to zero. Full employment can only be restored by a judicious combination of fiscal, monetary policy should aim at raising Tobin's q, not lowering the cost of funds. Deflation can be good or bad. 'Stagdeflation' is bad whilst 'growthdeflation' is good. Targeting inflation treats only the symptom, not the disease. Trade liberalisation by Japan is superior to yen depreciation as a means of exploiting the foreign trade multiplier to the benefit of the global as well as the Japanese economy.

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    File Function: First Version, 2003
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    Bibliographic Info

    Paper provided by Macquarie University, Department of Economics in its series Research Papers with number 0308.

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    Length: 32 pages.
    Date of creation: Sep 2003
    Date of revision:
    Handle: RePEc:mac:wpaper:0308

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    Related research

    Keywords: monetary and fiscal policy; liquidity trap; inflation; deflation; stagflation; Japan;

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