Japan Inside the Black Hole

Percy Ip ()
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Percy Ip: Department of Economics, Macquarie University

No 308, Research Papers from Macquarie University, Department of Economics

Abstract: When the demand for money is infinitely the interest elastic, injecting base money into the system is akin to money being sucked into a Black Hole. Economics activity will not be revived by driving the rate of interest to zero. Full employment can only be restored by a judicious combination of fiscal, monetary policy should aim at raising Tobin's q, not lowering the cost of funds. Deflation can be good or bad. 'Stagdeflation' is bad whilst 'growthdeflation' is good. Targeting inflation treats only the symptom, not the disease. Trade liberalisation by Japan is superior to yen depreciation as a means of exploiting the foreign trade multiplier to the benefit of the global as well as the Japanese economy.

Keywords: monetary and fiscal policy; liquidity trap; inflation; deflation; stagflation; Japan (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 F41 (search for similar items in EconPapers)
Pages: 32 pages.
Date: 2003-09
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