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Economic Developments and Monetary Policy Responses in Interwar Japan: Evaluation Based on the Taylor Rule

Author

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  • Shizume, Masato

    (Institute for Monetary & Econ Studies, Bank of Japan)

Abstract

This paper provides an overview of economic developments and the conduct of monetary policy in interwar Japan, while considering the relationships of these fluctuations and policies to changes in the monetary regime. To this end, monetary policies under the respective monetary regimes are discussed by using the Taylor rule, which has recently been widely applied to evaluations of monetary policy. The analyses in this paper reveal that Japan's monetary policy from the gold standard era through the interwar period generally worked in a pro- cyclical manner in relation to inflation rates, though influenced by the choice of monetary regimes. Domestic economic stability was sacrificed in the conduct of monetary policy to attain exchange rate targets under the gold standard system before World War I (WWI) and under the managed floating system in the 1920s. Although more effective monetary policy designed to stabilize the domestic economy might have been realized after the departure from the gold standard, such policies were not actually carried out.

Suggested Citation

  • Shizume, Masato, 2002. "Economic Developments and Monetary Policy Responses in Interwar Japan: Evaluation Based on the Taylor Rule," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(3), pages 77-116, October.
  • Handle: RePEc:ime:imemes:v:20:y:2002:i:3:p:77-116
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    File URL: http://www.imes.boj.or.jp/research/papers/english/me20-3-3.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Masato Shizume, 2007. "A Reassessment of Japan's Monetary Policy during the Great Depression: The Constraints and Remedies," Discussion Paper Series 208, Research Institute for Economics & Business Administration, Kobe University.
    2. Takatoshi Ito, 2010. "Great Inflation and Central Bank Independence in Japan," NBER Working Papers 15726, National Bureau of Economic Research, Inc.
    3. Shibamoto, Masahiko & Shizume, Masato, 2014. "Exchange rate adjustment, monetary policy and fiscal stimulus in Japan's escape from the Great Depression," Explorations in Economic History, Elsevier, vol. 53(C), pages 1-18.

    More about this item

    JEL classification:

    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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