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Looking into the Rear-View Mirror: Lessons from Japan for the Eurozone and the U.S?

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  • Pierre L. Siklos

    (Department of Economics, Wilfrid Laurier University and Balsillie School of International Affairs (E-mail: psiklos@wlu.ca))

Abstract

Until recently, Japan has been treated as an outlier of sorts, apparently mired in slow growth and low to mildly negative inflation for over a decade. Monetary policy especially, but not alone, has received a healthy share of the blame for Japan's predicament. However, other major economies, notably the U.S. and the Eurozone, have since shown signs of what observers now call 'Japanification'. This paper revisits and reconsiders the narratives surrounding Japan's economic performance since the 1980s in relation to the experiences of the U.S. and the Eurozone. Although there are clearly important differences between these three economies, including important institutional and structural differences, there are also some striking parallels. Equally important, at least according to the metrics used in this study, is that the poor reputation of the Bank of Japan's monetary policy is underserved. To be sure, there were periods of excessive tightness in policy, but the same is true for the other two economies considered. Indeed, the BoJ has been more credible than the other two central banks considered most of the time over the past decade. Of course, important economic challenges remain but Japan is not an outlier. However, in the area of monetary policy, the current policy strategy may have put the 'cart before the horse'. Arguably, the largest risk is the loss of credibility unless all elements of the three 'arrows' of Abenomics have been aimed properly.

Suggested Citation

  • Pierre L. Siklos, 2020. "Looking into the Rear-View Mirror: Lessons from Japan for the Eurozone and the U.S?," IMES Discussion Paper Series 20-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
  • Handle: RePEc:ime:imedps:20-e-02
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    File URL: https://www.imes.boj.or.jp/research/papers/english/20-E-02.pdf
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    Keywords

    Bank of Japan; monetary policy regimes; deflation; central bank credibility;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis

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