Monetary Implications of the Hayashi-Prescott Hypothesis for Japan
AbstractHayashi and Prescott speculate that the anemic performance of the Japanese economy since the early 1990s can be understood in terms of how any "well functioning" private sector might react to an exogenous productivity shock. In particular, they downplay the role of monetary and financial factors in shaping Japan's "lost decade." But many view the monetary and financial developments in Japan as direct evidence of a " malfunctioning" financial sector: These developments include a steady decline in bank lending and the money multiplier unexpected declines in inflation (and even the price level); nominal interest rates that are close to zero; and massive infusions of liquidity by the Bank of Japan that seem to have no effect at all (a "liquidity trap"). The primary purpose of my paper is to show that the Hayashi-Prescott hypothesis is not inconsistent with these monetary and financial developments. To the extent that this is true, monetary and fiscal policies, or reforms directed exclusively at the banking sector, are unlikely to reestablish productivity growth. What is likely needed are economy-wide reforms that enhance the willingness and ability of individuals to adopt potentially disruptive technological advancements and work practices.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0307008.
Date of creation: 16 Jul 2003
Date of revision:
Note: Type of Document - PDF; prepared on PC; to print on Lexmark;
Contact details of provider:
Web page: http://18.104.22.168
Japan; Productivity Slowdown; Liquidity Trap;
Other versions of this item:
- Andolfatto, David, 2003. "Monetary Implications of the Hayashi-Prescott Hypothesis for Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(4), pages 1-20, December.
- E - Macroeconomics and Monetary Economics
This paper has been announced in the following NEP Reports:
- NEP-DGE-2003-07-21 (Dynamic General Equilibrium)
- NEP-MAC-2003-07-21 (Macroeconomics)
- NEP-MON-2003-07-21 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Andolfatto & Paul Gomme, 2001.
"Monetary policy regimes and beliefs,"
9905, Federal Reserve Bank of Cleveland.
- David Andolfatto & Paul Gomme, 1997. "Monetary Policy Regimes and Beliefs," Working Papers 97002, University of Waterloo, Department of Economics, revised Jan 1997.
- David Andolfatto & Paul Gomme, 1997. "Monetary Policy Regimes and Beliefs," Cahiers de recherche CREFE / CREFE Working Papers 48, CREFE, Université du Québec à Montréal, revised Apr 2001.
- David Andolfatto & Paul Gomme, 1997. "Monetary policy regimes and beliefs," Discussion Paper / Institute for Empirical Macroeconomics 118, Federal Reserve Bank of Minneapolis.
- Okina, Kunio & Shirakawa, Masaaki & Shiratsuka, Shigenori, 2001. "The Asset Price Bubble and Monetary Policy: Japan's Experience in the Late 1980s and the Lessons: Background Paper," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 395-450, February.
- Taizo Motonishi & Hiroshi Yoshikawa, 1999.
"Causes of the Long Stagnation of Japan during the 1990fs: Financial or Real?,"
CIRJE-F-56, CIRJE, Faculty of Economics, University of Tokyo.
- 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.
- Taizo Motonishi & Hirshi Yoshikawa, 1999. "Causes of the Long Stagnation of Japan During the 1990s: Financial or Real?," NBER Working Papers 7351, National Bureau of Economic Research, Inc.
- Joseph Zeira, 2000.
"Informational overshooting, booms and crashes,"
Federal Reserve Bank of San Francisco, issue Apr.
- Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
- Bullard, James & Keating, John W., 1995. "The long-run relationship between inflation and output in postwar economies," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 477-496, December.
- Champ, Bruce & Freeman, Scott, 1990. "Money, Output, and the Nominal National Debt," American Economic Review, American Economic Association, vol. 80(3), pages 390-97, June.
- Mori, Naruki & Shiratsuka, Shigenori & Taguchi, Hiroo, 2001. "Policy Responses to the Post-bubble Adjustments in Japan: A Tentative Review," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 53-102, February.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Interest rates and slumps: competing views
by David Andolfatto in MacroMania on 2011-09-22 18:34:00
- The ridiculous Paul Krugman
by David Andolfatto in MacroMania on 2012-09-14 16:40:00
- David E. Lebow, 2004. "The monetisation of Japan's government debt," BIS Working Papers 161, Bank for International Settlements.
- Kobayashi, Keiichiro & Inaba, Masaru, 2006.
"Business cycle accounting for the Japanese economy,"
Japan and the World Economy,
Elsevier, vol. 18(4), pages 418-440, December.
- Keiichiro Kobayashi & Masaru Inaba, 2006. "Business cycle accounting for the Japanese economy," 2006 Meeting Papers 313, Society for Economic Dynamics.
- Keiichiro Kobayashi & Masaru Inaba, 2005. "Business Cycle Accounting for the Japanese Economy," Discussion papers 05023, Research Institute of Economy, Trade and Industry (RIETI).
- Claudio Morana, 2005.
"The Japanese deflation: has it had real effects? Could it have been avoided?,"
Taylor & Francis Journals, vol. 37(12), pages 1337-1352.
- Claudio Morana, 2004. "The Japanese Deflation: Has It Had Real Effects? Could It Have Been Avoided?," ICER Working Papers 29-2004, ICER - International Centre for Economic Research.
- Miyake, Atsushi & Nakamura, Tamotsu, 2007. "A dynamic analysis of an economy with banking optimization and capital adequacy regulations," Journal of Economics and Business, Elsevier, vol. 59(1), pages 14-27.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.