EconPapers    
Economics at your fingertips  
 

Macroeconomic Policy in Japan

Warwick McKibbin ()

Asian Economic Papers, 2002, vol. 1, issue 2, 133-165

Abstract: This paper explores the composition of the macroeconomic policy packages that would be effective in stimulating the Japanese economy. An empirical econometric model is used to predict the consequences of a monetary stimulus consisting of an open-market purchase of government bonds by the Bank of Japan combined with the announcement and implementation of inflation targeting in Japan. The paper also compares the impacts of permanent, temporary, and phased fiscal adjustments. The model predicts that monetary policy would be effective in stimulating the Japanese economy through causing a depreciation of the yen. Similarly, a substantial fiscal consolidation in Japan would be only mildly contractionary for the first two years but then would yield substantial long-term benefits to the Japanese economy. Combining a credible fiscal contraction that is phased in over three years with an inflation target would be likely to provide a powerful macroeconomic stimulus to the Japanese economy, through a weaker exchange rate and lower long-term real interest rates, and would sustain higher growth in Japan for a decade. Thus, a switch in the macroeconomic policy mix toward a loose monetary policy (e.g., setting inflation targets between 2 and 3 percent) and a tight fiscal policy is likely to be an important part of a successful package of reforms to raise Japanese productivity growth over the coming years. Copyright (c) 2002 Center for International Development at Harvard University and Massachusetts Institute of Technology.

Date: 2002
References: Add references at CitEc
Citations: View citations in EconPapers (24) Track citations by RSS feed

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdfplus/10.1162/15353510260187454 link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tpr:asiaec:v:1:y:2002:i:2:p:133-165

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=1535-3516

Access Statistics for this article

Asian Economic Papers is currently edited by Wing Thye Woo, Sung-Chun Jung, Fukunari Kimura and Ming Lu

More articles in Asian Economic Papers from MIT Press
Bibliographic data for series maintained by Ann Olson ().

 
Page updated 2019-12-01
Handle: RePEc:tpr:asiaec:v:1:y:2002:i:2:p:133-165