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Increased Diversity and Deepened Uncertainty: Policy Challenges in a Zero‐Inflation Economy

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  • Kiyohiko G. Nishimura

Abstract

The world economy today shows ‘great diversity’. There are multiple engines of growth in various regions around the globe. Risks are diversified, as many novel financial products are being introduced and sold to a continuing flow of newcomers to the financial world. This increased diversity seems to deepen uncertainty surrounding monetary policy in two respects. First, coupled with increased competition, it may make prices less responsive to short‐run demand changes than before, thus making monetary transmission mechanism less certain. In fact, Japanese IS and Phillips curves seem increasingly uncertain in the past 15 years. Second, we are in transition between one financial structure of little diversification and another of great diversification. In a transition period, information is scarce and rapidly becomes obsolete, posing real challenges to financial stability. I argue that the flexible gradualism, which the Bank has now adopted, is a prudent way to cope with such deepened uncertainty.

Suggested Citation

  • Kiyohiko G. Nishimura, 2007. "Increased Diversity and Deepened Uncertainty: Policy Challenges in a Zero‐Inflation Economy," International Finance, Wiley Blackwell, vol. 10(3), pages 281-300, December.
    • Handle: RePEc:bla:intfin:v:10:y:2007:i:3:p:281-300
    DOI: 10.1111/j.1468-2362.2007.00207.x
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    References listed on IDEAS

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    1. Nishimura, Kiyohiko G. & Ohkusa, Yasushi & Ariga, Kenn, 1999. "Estimating the mark-up over marginal cost: a panel analysis of Japanese firms 1971-1994," International Journal of Industrial Organization, Elsevier, vol. 17(8), pages 1077-1111, November.
    2. Kiyohiko G. Nishimura, 1986. "Rational Expectations and Price Rigidity in a Monopolistically Competitive Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(2), pages 283-292.
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    Cited by:

    1. Fueki, Takuji & Kawamoto, Takuji, 2009. "Does information technology raise Japan's productivity?," Japan and the World Economy, Elsevier, vol. 21(4), pages 325-336, December.
    2. Kazuo Ueda, 2007. "Trying to Make Sense of the Bank of Japan's Monetary Policy sinse the Exit from Quantitative Easing ( Published in "International Finance", Winter 2007, Vol. 10, No.3, 301-16. )," CARF F-Series CARF-F-114, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    3. Kazuo Ueda, 2007. "Trying to Make Sense of the Bank of Japan's Monetary Policy since the Exit from Quantitative Easing," International Finance, Wiley Blackwell, vol. 10(3), pages 301-316, December.
    4. Wang, Jianxin & Yang, Minxian, 2011. "Housewives of Tokyo versus the gnomes of Zurich: Measuring price discovery in sequential markets," Journal of Financial Markets, Elsevier, vol. 14(1), pages 82-108, February.
    5. Takuji Fueki & Takuji Kawamoto, 2008. "Does Information Technology Raise Japan's Productivity?," Bank of Japan Working Paper Series 08-E-8, Bank of Japan.

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