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The Japanese Economy and Economic Policy in Light of the East Asian Financial Crisis

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  • Ramkishen Rajan

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Abstract

The depth and breadth of the East Asian financial crisis has added a sense of acute urgency for some concrete and credible measures by policy-makers to revitalise the Japanese economy. While steps to be taken for the long-run competitiveness and economic revitalisation of the Japanese economy are clear (with the only doubt being about whether and how effectively they will be implemented), those needed to boost aggregate demand in the short run are far less obvious. Given the near-zero nominal interest rates in Japan, most observers argue that an expansionary monetary policy would be ineffective. However, as with Krugman (1998a,b), we argue that once a distinction is made between real and nominal interest rates, it is logically possible for monetary policy to be effective in raising demand if it is able to create inflationary expectations. This could probably be effected through explicit announcements by the Bank of Japan of the intention to target a certain inflation rate in the future. [Working Paper No. 2]

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  • Ramkishen Rajan, 2010. "The Japanese Economy and Economic Policy in Light of the East Asian Financial Crisis," Working Papers id:2695, eSocialSciences.
  • Handle: RePEc:ess:wpaper:id:2695 Note: Institutional Papers
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    References listed on IDEAS

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    1. Barro, Robert J, 1989. "The Ricardian Approach to Budget Deficits," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 37-54, Spring.
    2. Robert P. Flood & Mark P. Taylor, 1996. "Exchange Rate Economics: What's Wrong with the Conventional Macro Approach?," NBER Chapters,in: The Microstructure of Foreign Exchange Markets, pages 261-302 National Bureau of Economic Research, Inc.
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    4. ., 1998. "Neurath, Otto," Chapters,in: The Handbook of Economic Methodology, chapter 78 Edward Elgar Publishing.
    5. Morris Goldstein & John Hawkins, 1998. "The Origin of the Asian Financial Turmoil," RBA Research Discussion Papers rdp9805, Reserve Bank of Australia.
    6. Takao Kawakita, 1996. "What the Central Bank Can and Cannot Do," Japanese Economy, Taylor & Francis Journals, vol. 24(5), pages 33-70.
    7. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584-584.
    8. John G. Fernald & Hali J. Edison & Prakash Loungani, 1998. "Was China the first domino? assessing links between China and the rest of emerging Asia," International Finance Discussion Papers 604, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Ramkishen Rajan, 1998. "Restraints On Capital Flows : What Are They?," Macroeconomics Working Papers 22383, East Asian Bureau of Economic Research.
    2. Arun, Thankom Gopinath & Annim, Samuel, 2010. "Economic Governance of MFIs: Inside the Black Box," IZA Discussion Papers 5159, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    East Asian; financial crisis; policy-makers; revitalise; Japanese economy; nominal interest rates; expansionary monetary policy; inflationary expectations; inflation rate;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises

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