Can Japan Make a Comeback?
Since the beginning of the 1990s Japan has experienced economic stagnation. The economy had been allowed to overheat in the 1980s and a bubble had been built up. When this burst, there was massive asset-deflation, which led to a banking crisis. The bad debts were not faced up to effectively. Japanese banks could not achieve high enough margins to recapitalise themselves, and the government was for a long time reluctant to intervene effectively. The shock made economic agents more pessimistic, which led to an imbalance between savings and investment-demand. Excess savings were placed abroad and used to finance a domestic fiscal deficit, but this was not enough to close the gap and sustain growth. To be able to run a large current account surplus the yen needed to depreciate, but this was not achieved due to expectations about a future appreciation. The strategy to get out of the liquidity trap would include credible inflation targeting and yen depreciation. Monetary policy should have an inflation target well above zero per cent. Such macroeconomic measures need to be complemented by structural reforms such as deregulation of financial services, competition policy and reallocation of public investments. The Japanese development model with close connections between firms and banks needs to be reformed. Japan should be able to achieve stable growth again, but since the catch-up phase is over one would not expect growth in Japan to be higher than in other developed countries, even if Japan undertakes the needed reforms. Copyright Blackwell Publishing Ltd 2005.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 28 (2005)
Issue (Month): 4 (04)
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0378-5920|
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=0378-5920|
References listed on IDEAS
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.:
- Paul D. McNelis & Naoyuki Yoshino, 2004. "Deciphering the Message in Japanese Deflation Dynamics," Asian Economic Papers, MIT Press, vol. 3(2), pages 49-70.
- Gauti B. Eggertsson & Michael Woodford, 2003. "Optimal Monetary Policy in a Liquidity Trap," NBER Working Papers 9968, National Bureau of Economic Research, Inc.
- W. J. McKibbin & P. J. Wilcoxen, .
"The Theoretical and Empirical Structure of the G-Cubed Model,"
118, Brookings Institution International Economics.
- McKibbin, Warwick J. & Wilcoxen, Peter J., 1998. "The theoretical and empirical structure of the G-Cubed model," Economic Modelling, Elsevier, vol. 16(1), pages 123-148, January.
- McKibbin, W.J. & Wilcoxen, P.J., 1995. "The Theoretical and Empirical Structure of the G-Cubed Model," Papers 118, Brookings Institution - Working Papers.
- Lars E.O. Svensson, 2003.
"Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others,"
NBER Working Papers
10195, National Bureau of Economic Research, Inc.
- Lars E.O. Svensson, 2003. "Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 145-166, Fall.
- Marvin Goodfriend, 2000.
"Overcoming the zero bound on interest rate policy,"
Conference Series ; [Proceedings],
Federal Reserve Bank of Boston, pages 1007-1057.
- James Clouse & Dale Henderson & Athanasios Orphanides & David Small & Peter Tinsley, 2000.
"Monetary policy when the nominal short-term interest rate is zero,"
Finance and Economics Discussion Series
2000-51, Board of Governors of the Federal Reserve System (U.S.).
- Clouse James & Henderson Dale & Orphanides Athanasios & Small David H. & Tinsley P.A., 2003. "Monetary Policy When the Nominal Short-Term Interest Rate is Zero," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-65, September.
- Krugman, Paul, 2000. "Thinking About the Liquidity Trap," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 221-237, December.
- Naoyuki Yoshino & Eisuke Sakakibara, 2002. "The Current State of the Japanese Economy and Remedies," Asian Economic Papers, MIT Press, vol. 1(2), pages 110-126.
When requesting a correction, please mention this item's handle: RePEc:bla:worlde:v:28:y:2005:i:4:p:595-606. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.