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Fiscal Remedies for Japan's Slump

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  • Laurence Ball

Abstract

This paper asks how a fiscal expansion would affect Japan. It uses a textbook-style macro model calibrated to fit the Japanese economy. According to the results, Japan%u2019s output slump would be ended by a fiscal transfer of 6.6% of GDP. This policy raises the debt-income ratio in the short run, but it reduces this ratio in the long run through higher inflation and tax revenue. The financing of the transfer -- bonds or money -- affects debt in the short run but not the long run.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11374.

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Date of creation: May 2005
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Publication status: published as Laurence M. Ball, 2006. "Fiscal Remedies for Japan’s Slump," NBER Chapters, in: Monetary Policy under Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 279-306 National Bureau of Economic Research, Inc.
Handle: RePEc:nbr:nberwo:11374

Note: EFG ME PE
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  1. Marvin Goodfriend, 2000. "Overcoming the zero bound on interest rate policy," Working Paper, Federal Reserve Bank of Richmond 00-03, Federal Reserve Bank of Richmond.
  2. Ryuzo Miyao, 2002. "Liquidity Trap and the Stability of Money Demand: Is Japan Really Trapped at the Zero Bound?," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University 127, Research Institute for Economics & Business Administration, Kobe University.
  3. Auerbach, Alan J. & Obstfeld, Maurice, 2012. "The Case for Open-Market Purchases in a Liquidity Trap," Center for International and Development Economics Research, Working Paper Series, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkele qt84s7d8c8, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  4. Christian Broda & David E. Weinstein, 2004. "Happy News from the Dismal Science: Reassessing the Japanese Fiscal Policy and Sustainability," NBER Working Papers 10988, National Bureau of Economic Research, Inc.
  5. Laurence Ball, 1997. "Efficient Rules for Monetary Policy," NBER Working Papers 5952, National Bureau of Economic Research, Inc.
  6. Mitsuhiro Fukao, 2003. "Financial strains and the zero lower bound: the Japanese experience," BIS Working Papers 141, Bank for International Settlements.
  7. Krugman, Paul, 2000. "Thinking About the Liquidity Trap," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 221-237, December.
  8. Bennett T. McCallum, 2000. "Alternative monetary policy rules : a comparison with historical settings for the United States, the United Kingdom, and Japan," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Win, pages 49-79.
  9. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, Elsevier, vol. 41(6), pages 1111-1146, June.
  10. Takeo Hoshi & Anil K. Kashyap, 2004. "Japan's Financial Crisis and Economic Stagnation," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 18(1), pages 3-26, Winter.
  11. 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.
  12. Adam S. Posen, 1998. "Restoring Japan's Economic Growth," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 35, July.
  13. Daniel Leigh, 2004. "Monetary Policy and the Dangers of Deflation:Lessons from Japan," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 511, The Johns Hopkins University,Department of Economics.
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Cited by:
  1. Evans, George W & Guse, Eran & Honkapohja, Seppo, 2007. "Liquidity Traps, Learning and Stagnation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6355, C.E.P.R. Discussion Papers.
  2. Ali al-Nowaihi & Sanjit Dhami, 2011. "Strategic monetary and fiscal policy interaction in a liquidity trap," Discussion Papers in Economics 11/43, Department of Economics, University of Leicester.

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