COMMENT ‘A “NEWS” VIEW OF JAPAN'S LOST DECADE’: MONETARY POLICY DURING JAPAN'S LOST DECADE*
Franck Portier ()
The Japanese Economic Review, 2006, vol. 57, issue 2, 345-357
In this comment, I first propose a discussion of Braun and Waki's “Monetary Policy during Japan's Lost Decade” paper, by examining their model properties following a technological surprise. I then propose some empirical evidence suggesting that the Japanese lost decade could have been triggered by a downward revision of future TFP growth rather by an unexpected TFP slowdown. I show that a plain RBC model is unable to account for the effect of such a revision in expectation, while a sticky price model along the lines of Braun and Waki, or a flex‐price model with a rich sectorial structure, give more realistic predictions. These results favour a “News” view of the 1990s in Japan. Indeed, a downwards revision of future TFP growth expectations act as a demand shock in the short term, while the actual slowdown acts as a supply shock in the medium and long term.
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