IDEAS home Printed from https://ideas.repec.org/p/bis/biswps/141.html
   My bibliography  Save this paper

Financial strains and the zero lower bound: the Japanese experience

Author

Listed:
  • Mitsuhiro Fukao

    (Keio University - Faculty of Business, Commerce)

Abstract

We analyse the case of persistent deflation in Japan by estimating the long-run Phillips curve equation using the GDP deflator and the estimated GDP gap. Then we show that the Japanese banking sector has been losing money since the early 1990s due to the heavy credit cost and that it is quickly running out of capital. The Japanese government has been preventing a banking crisis by providing a blanket guarantee on most banking sector liabilities. However, the government is facing a rapid deterioration of financial conditions due to massive budget deficits and the negative nominal GDP growth in recent years. In spite of the quantitative easing of monetary policy, the traditional interest rate policy has lost its potency due to the zero lower bound of nominal interest rates and accelerating deflation. Without stopping deflation quickly, the Japanese government may face capital flight due to the uncontrolled budget deficit. In order to cope with this unusual situation, two nontraditional policy measures are proposed: massive open market purchases of high-quality real assets and a negative nominal interest policy by levying tax on all government-guaranteed yen financial assets.

Suggested Citation

  • Mitsuhiro Fukao, 2003. "Financial strains and the zero lower bound: the Japanese experience," BIS Working Papers 141, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:141
    as

    Download full text from publisher

    File URL: http://www.bis.org/publ/work141.pdf
    File Function: Full PDF document
    Download Restriction: no
    File URL: http://www.bis.org/publ/work141.htm
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tim Robinson & Andrew Stone, 2006. "Monetary Policy, Asset-Price Bubbles, and the Zero Lower Bound," NBER Chapters, in: Monetary Policy with Very Low Inflation in the Pacific Rim, pages 43-84, National Bureau of Economic Research, Inc.
    2. Borio, Claudio & Filardo, Andrew J., 2004. "Looking back at the international deflation record," The North American Journal of Economics and Finance, Elsevier, vol. 15(3), pages 287-311, December.
    3. Andrew Filardo & Claudio E. V. Borio, 2004. "Back to the future? Assessing the deflation record," BIS Working Papers 152, Bank for International Settlements.
    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. Laurence M. Ball, 2006. "Fiscal Remedies for Japan's Slump," NBER Chapters, in: Monetary Policy with Very Low Inflation in the Pacific Rim, pages 279-304, National Bureau of Economic Research, Inc.
    6. Mitsuhiro Fukao, 2005. "The effects of ‘Gesell’ (Currency) taxes in promoting Japan's economic recovery," International Economics and Economic Policy, Springer, vol. 2(2), pages 173-188, November.
    7. Mitsuhiro Fukao, 2010. "Financial Crisis and Long-term Stagnation in Japan: Fiscal Consolidation under Deflationary Pressures," Keio/Kyoto Joint Global COE Discussion Paper Series 2010-010, Keio/Kyoto Joint Global COE Program.
    8. FUKAO Mitsuhiro, 2014. "Fiscal Consolidation in Japan," Discussion papers 14015, Research Institute of Economy, Trade and Industry (RIETI).
    9. David Laidler, 2003. "Monetary Policy without Money: Hamlet without the Ghost," University of Western Ontario, Departmental Research Report Series 20037, University of Western Ontario, Department of Economics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bis:biswps:141. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Martin Fessler (email available below). General contact details of provider: https://edirc.repec.org/data/bisssch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.