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Is Japan Special? Monetary Linkages and Price Stability

Author

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  • Lohmann, Susanne

    (UCLA)

Abstract

Empirical studies of central bank independence and inflation identify Japan as an outlier. By standard measures, the Bank of Japan is one of the least independent central banks in the world, and yet Japan enjoys some of the lowest inflation rates. This paper develops a model of monetary link; ages with implications for the institutional course stability. The model explains why price stability in the "old" Japan-- with its powerful bureaucracy and single-party rule--did not necessarily rely on monetary institutions. It predicts that the "new" Japan, in which power is shifting from the bureaucracy to elected politicians who compete with each other in the political marketplace, must make use of monetary institutions to achieve price stability.

Suggested Citation

  • Lohmann, Susanne, 1997. "Is Japan Special? Monetary Linkages and Price Stability," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 15(2), pages 63-79, December.
  • Handle: RePEc:ime:imemes:v:15:y:1997:i:2:p:63-79
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    References listed on IDEAS

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    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
    2. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-286, March.
    3. Canzoneri, Matthew B, 1985. "Monetary Policy Games and the Role of Private Information," American Economic Review, American Economic Association, vol. 75(5), pages 1056-1070, December.
    4. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    5. Manfred Neumann, 1991. "Precommitment by central bank independence," Open Economies Review, Springer, vol. 2(2), pages 95-112, June.
    6. Cowhey, Peter F., 1993. "Domestic institutions and the credibility of international commitment: Japan and the United States," International Organization, Cambridge University Press, vol. 47(02), pages 299-326, March.
    7. Lohmann, Susanne, 1993. "Electoral cycles and international policy cooperation," European Economic Review, Elsevier, vol. 37(7), pages 1373-1391, October.
    8. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, January.
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    10. Michihiro Kandori, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 63-80.
    11. Cukierman, Alex & Edwards, Sebastian & Tabellini, Guido, 1992. "Seigniorage and Political Instability," American Economic Review, American Economic Association, vol. 82(3), pages 537-555, June.
    12. Michael D. McGinnis, 1986. "Issue Linkage and the Evolution of International Cooperation," Journal of Conflict Resolution, Peace Science Society (International), vol. 30(1), pages 141-170, March.
    13. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-167, March.
    14. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    15. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
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    Cited by:

    1. Milhaupt, Curtis-J, 1999. "Japan's Experience with Deposit Insurance and Failing Banks: Implications for Financial Regulatory Design?," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 17(2), pages 21-46, August.

    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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