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Looking into the Rear-View Mirror: Lessons from Japan for the Eurozone and the U.S?

Pierre L. Siklos
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Pierre L. Siklos: Department of Economics, Wilfrid Laurier University and Balsillie School of International Affairs (E-mail:

No 20-E-02, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: Until recently, Japan has been treated as an outlier of sorts, apparently mired in slow growth and low to mildly negative inflation for over a decade. Monetary policy especially, but not alone, has received a healthy share of the blame for Japan's predicament. However, other major economies, notably the U.S. and the Eurozone, have since shown signs of what observers now call 'Japanification'. This paper revisits and reconsiders the narratives surrounding Japan's economic performance since the 1980s in relation to the experiences of the U.S. and the Eurozone. Although there are clearly important differences between these three economies, including important institutional and structural differences, there are also some striking parallels. Equally important, at least according to the metrics used in this study, is that the poor reputation of the Bank of Japan's monetary policy is underserved. To be sure, there were periods of excessive tightness in policy, but the same is true for the other two economies considered. Indeed, the BoJ has been more credible than the other two central banks considered most of the time over the past decade. Of course, important economic challenges remain but Japan is not an outlier. However, in the area of monetary policy, the current policy strategy may have put the 'cart before the horse'. Arguably, the largest risk is the loss of credibility unless all elements of the three 'arrows' of Abenomics have been aimed properly.

Keywords: Bank of Japan; monetary policy regimes; deflation; central bank credibility (search for similar items in EconPapers)
JEL-codes: E31 E32 E42 E44 E52 E58 C32 C34 C38 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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