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Fiscal Remedies for Japan's Slump

In: Monetary Policy with Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15

  • Laurence M. Ball

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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This chapter was published in:
  • Takatoshi Ito & Andrew K. Rose, 2006. "Monetary Policy with Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15," NBER Books, National Bureau of Economic Research, Inc, number ito_06-1, October.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10144.
    Handle: RePEc:nbr:nberch:10144
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    1. Adam S. Posen, 1998. "Restoring Japan's Economic Growth," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 35.
    2. Alan Auerbach & Maurice Obstfeld, 2003. "The case for open-market purchases in a liquidity trap," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    3. Laurence Ball, 1997. "Efficient rules for monetary policy," Reserve Bank of New Zealand Discussion Paper Series G97/3, Reserve Bank of New Zealand.
    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. Krugman, Paul, 2000. "Thinking About the Liquidity Trap," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 221-237, December.
    6. Svensson, Lars E O, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," CEPR Discussion Papers 1511, C.E.P.R. Discussion Papers.
    7. Mitsuhiro Fukao, 2006. "Financial Strains and the Zero Lower Bound: The Japanese Experience," NBER Chapters, in: Monetary Policy with Very Low Inflation in the Pacific Rim, NBER-EASE, Volume 15, pages 203-232 National Bureau of Economic Research, Inc.
    8. Takeo Hoshi & Anil K. Kashyap, 2004. "Japan's Financial Crisis and Economic Stagnation," Journal of Economic Perspectives, American Economic Association, vol. 18(1), pages 3-26, Winter.
    9. Ryuzo Miyao, 2002. "Liquidity Trap and the Stability of Money Demand: Is Japan Really Trapped at the Zero Bound?," Discussion Paper Series 127, Research Institute for Economics & Business Administration, Kobe University.
    10. Marvin Goodfriend, 2000. "Overcoming the zero bound on interest rate policy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 1007-1057.
    11. Yasuo Hirose & Koichiro Kamada, 2002. "Time-Varying NAIRU and Potential Growth in Japan," Bank of Japan Working Paper Series Research and Statistics D, Bank of Japan.
    12. 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.
    13. Bennett T. McCallum, 2000. "Alternative Monetary Policy Rules: A Comparison with Historical Settings for the United States, the United Kingdom, and Japan," NBER Working Papers 7725, National Bureau of Economic Research, Inc.
    14. Daniel Leigh, 2004. "Monetary Policy and the Dangers of Deflation:Lessons from Japan," Economics Working Paper Archive 511, The Johns Hopkins University,Department of Economics.
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