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The Japanese Deflation: Has It Had Real Effects? Could It Have Been Avoided?

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  • Claudio Morana

    ()

Has deflation contributed to the long lasting stagnation of the Japanese economy? Could the Bank of Japan have stopped deflation by implementing a more expansionary monetary policy? Our tentative answers are probably not to the first question, and probably yes to the second question. We find that the total cost of deflation over the period 1995-2003 has been close to a 1.1% rate of lost GDP. Yet, on the basis of statistical significance and robustness to specification choices, this evidence is not compelling. On the other hand, the estimated positive linkage between nominal base money growth and inflation is significant and robust, even given current economic conditions. However, in order to be inflationary, monetary policy should have been more expansionary than what actually observed, even since the launch of the quantitative easing in 2001.

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File URL: http://www.biblioecon.unito.it/biblioservizi/RePEc/icr/wp2004/Morana29-04.pdf
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Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 29-2004.

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Length: 35 pages
Date of creation: Nov 2004
Handle: RePEc:icr:wpicer:29-2004
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