EconPapers    
Economics at your fingertips  
 

Great Inflation and Central Bank Independence in Japan

Takatoshi Ito ()

No 15726, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Japan suffered a very high inflation rate in 1973-74. The CPI inflation rate rose to near 30% in 1974, the highest rate in the postwar Japanese history after the chaotic hyperinflation following the end of the Second World War. Traditionally, the oil crisis is blamed for the 1973-74 high inflation. However, due to monetary policy decisions in 1972-73, the inflation rate had already exceeded 10% before the onset of the oil crisis in October 1973. These decisions include the interest rate cut of June 1972 and the interest rate hike of April 1973, which in retrospect proved too small. Concern about the rapid yen appreciation produced political pressure on the Bank of Japan to continue easing. The Bank of Japan came out of the Great Inflation of 1973 with a stronger voice. The Bank successfully argued that its recommendation to tighten monetary policy should not be overruled or the high inflation would be repeated. By this logic, the Bank of Japan obtained /de facto/ independence after 1975. When faced with the next economic recovery in 1979, again accompanied by oil price increases, the Bank of Japan was able to tighten monetary policy and to contain the inflation rate under 10 percent. The interest rate in the 1972-75 period was well below, by as much as 25 percentage points in 1973, the interest rate suggested by a modified monthly Taylor rule regression.

JEL-codes: E02 E31 E58 N15 (search for similar items in EconPapers)
Date: 2010-02
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
Note: EFG IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Published as Great Inflation and Central Bank Independence in Japan , Takatoshi Ito. in The Great Inflation: The Rebirth of Modern Central Banking , Bordo and Orphanides. 2013

Downloads: (external link)
http://www.nber.org/papers/w15726.pdf (application/pdf)

Related works:
Chapter: Great Inflation and Central Bank Independence in Japan (2013) Downloads
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:nbr:nberwo:15726

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w15726

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2021-06-09
Handle: RePEc:nbr:nberwo:15726