Effectiveness of the Easing of Monetary Policy in the Japanese Economy, Incorporating Energy Prices

Naoyuki Yoshino () and Farhad Taghizadeh-Hesary ()

Macroeconomics Working Papers from East Asian Bureau of Economic Research

Abstract: Japan has reached the limits of conventional macroeconomic policy. In order to overcome deflation and achieve sustainable economic growth, the Bank of Japan (BOJ) recently set an inflation target of 2% and implemented an aggressive monetary policy so this target could be achieved as soon as possible. Although prices started to rise after the BOJ implemented monetary easing, this may have been for other reasons, such as higher oil prices. Oil became expensive as a result of the depreciated Japanese yen and this was one of the main causes of the rise in inflation. This paper shows that quantitative easing may not have stimulated the Japanese economy either. Aggregate demand, which includes private investment, did not increase significantly in Japan with lower interest rates. Private investment displays this unconventional behavior because of uncertainty about the future and because Japan’s population is aging. We believe that the remedy for Japan’s economic policy is not to be found in monetary policy. The government needs to implement serious structural changes and growth strategies.

Keywords: Easing of Monetary Policy; the Japanese economy; energy price; Bank of Japan; aging population (search for similar items in EconPapers)
JEL-codes: E47 E52 Q41 Q43 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-cba, nep-ene, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Effectiveness of the Easing of Monetary Policy in the Japanese Economy, Incorporating Energy Prices (2014)
Working Paper: Effectiveness of the Easing of Monetary Policy in the Japanese Economy, Incorporating Energy Prices (2014)
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