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

Ramkishen Rajan

Working Papers from eSocialSciences

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]

Keywords: East Asian; financial crisis; policy-makers; revitalise; Japanese economy; nominal interest rates; expansionary monetary policy; inflationary expectations; inflation rate (search for similar items in EconPapers)
Date: 2010-07
New Economics Papers: this item is included in nep-mac and nep-sea
Note: Institutional Papers
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Working Paper: The Japanese Economy and Economic Policy in Light of the East Asian Financial Crisis (1998)
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