IDEAS home Printed from
   My bibliography  Save this paper

The Recent Monetary Policy and Money Demand in Japan


  • Shigeyoshi Miyagawa

    (Department of Economics, Kyoto Gakuen University)

  • Yoji Morita

    (Department of Economics, Kyoto Gakuen University)


After the burst of the bubble, the Japanese economy has experienced a hard recession which Japan has never experienced after the war. The Japanese government conducted the huge public investment without success. The Bank of Japan also performed the low interest policy to boost the economy. However, Japanese economy got worse after 1997 when the leading financial institutions suddenly collapsed. The Japanese economy had plunged into the deflationary spiral. The BOJ took the so-called zero interest policy after 1999 to fight against the deflationary pressure. Furthermore, it started the qualitative easing policy by increasing the outright purchase of government bond after March 2001. The policy stands on the idea that money stock has the positive effect on the economy. The money demand has to be stable for the policy to succeed. The bank of Japan (2003) recently reported that the long-run equilibrium relationship between money stock and real economic activity can no longer be detected, though such relationship could be found before 1997. In this paper we quantify that money stock has a positive relationship with real economic activity, and money demand is still stable. We found one cointegration in the cointegration test between money stock, real GDP, and share price in the period from 1981 through 1997. However the cointegration has broken out when the sample period was extended beyond 1997, as the BOJ (2003) suggests. We performed the cointegration test again by comprising a new variable: financial anxiety and found one cointegration. Dynamic money demand function was estimated with an error correction term. The result was almost statistically satisfactory, suggesting the stability of money demand.

Suggested Citation

  • Shigeyoshi Miyagawa & Yoji Morita, 2004. "The Recent Monetary Policy and Money Demand in Japan," Discussion Papers 04-15, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:0415

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Phillips, P.C.B., 1986. "Understanding spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 33(3), pages 311-340, December.
    Full references (including those not matched with items on IDEAS)


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

    Cited by:

    1. Y. Morita & Md. J. Rahman & S. Miyagawa, 2006. "Estimation of Precautionary Demand by Financial Anxieties," Computing in Economics and Finance 2006 46, Society for Computational Economics.

    More about this item


    cointegration; financial anxiety; stability of money demand;

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy


    Access and download statistics


    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:kud:kuiedp:0415. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Hoffmann). General contact details of provider: .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.