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The Role of Preconceived Ideas in Macroeconomic Policy: Japan's Experiences in the Two Deflationary Periods

Author

Listed:
  • Koichi Hamada

    () (Economic Growth Center, Yale University)

  • Asahi Noguchi

    () (Senshu University)

Abstract

This paper examines the role of misleading economic ideas that most likely promoted the economic disasters of the two deflationary periods in Japanese economic history. Misleading ideas deepened the depression during the interwar years, and erroneous thinking prolonged the stagnation of the Japanese economy since the 1990s. While the current framework of political economy is based on the self-interests of political agents as well as of voters, we highlight the role of ideas in policy making, in particular, in the field of macro-economy where the incidence of a particular policy is not clear to the public. Using two significant examples, this paper illustrates the role of preconceived ideas, in contrast to economic interests, that dominantly influenced economic policy making.

Suggested Citation

  • Koichi Hamada & Asahi Noguchi, 2005. "The Role of Preconceived Ideas in Macroeconomic Policy: Japan's Experiences in the Two Deflationary Periods," Working Papers 908, Economic Growth Center, Yale University.
    • Handle: RePEc:egc:wpaper:908
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    File URL: http://www.econ.yale.edu/growth_pdf/cdp908.pdf
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    References listed on IDEAS

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    1. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
    2. Irving Fisher, 1913. "A Compensated Dollar," The Quarterly Journal of Economics, Oxford University Press, vol. 27(2), pages 213-235.
    3. Svensson, Lars-E-O, 2001. "The Zero Bound in an Open Economy: A Foolproof Way of Escaping from a Liquidity Trap," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 277-312, February.
    4. Frankel, Jeffrey A & Rockett, Katharine E, 1988. "International Macroeconomic Policy Coordination When Policymakers Do Not Agree on the True Model," American Economic Review, American Economic Association, vol. 78(3), pages 318-340, June.
    5. Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, vol. 72(3), pages 307-319, June.
    6. Peter Temin, 1991. "Lessons from the Great Depression," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262700441, January.
    7. Edwin M. Truman, 2003. "Inflation Targeting in the World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 346.
    8. Putnam, Robert D., 1988. "Diplomacy and domestic politics: the logic of two-level games," International Organization, Cambridge University Press, vol. 42(03), pages 427-460, June.
    9. Burdekin,Richard C. K. & Siklos,Pierre L. (ed.), 2004. "Deflation," Cambridge Books, Cambridge University Press, number 9780521837996, October.
    10. Koichi Hamada, 2004. "Policy Making In Deflationary Japan," The Japanese Economic Review, Japanese Economic Association, vol. 55(3), pages 221-239.
    11. Barry Eichengreen & Peter Temin, 1997. "The Gold Standard and the Great Depression," NBER Working Papers 6060, National Bureau of Economic Research, Inc.
    12. Jeffrey Frankel, 2003. "What an Economic Adviser Can Do When He Disagrees with the President," Challenge, Taylor & Francis Journals, vol. 46(3), pages 29-52.
    13. Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 98(3), pages 371-400.
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    More about this item

    Keywords

    Preconceived ideas; perception on economic mechanism; vested interests; great depression; deflation in contemporary Japan;

    JEL classification:

    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • N2 - Economic History - - Financial Markets and Institutions

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