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

Author

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  • Naoyuki Yoshino

    (Asian Development Bank Institute (ADBI))

  • Farhad Taghizadeh-Hesary

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.

Suggested Citation

  • Naoyuki Yoshino & Farhad Taghizadeh-Hesary, 2014. "Effectiveness of the Easing of Monetary Policy in the Japanese Economy, Incorporating Energy Prices," Macroeconomics Working Papers 24520, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:macroe:24520
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    References listed on IDEAS

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    1. Jordi Galí & Mark Gertler, 2007. "Macroeconomic Modeling for Monetary Policy Evaluation," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 25-46, Fall.
    2. Farhad Taghizadeh-Hesary & Naoyuki Yoshino, 2016. "Which Side of the Economy Is Affected More by Oil Prices: Supply or Demand?," ADB Institute Series on Development Economics, in: Naoyuki Yoshino & Farhad Taghizadeh-Hesary (ed.), Monetary Policy and the Oil Market, edition 1, chapter 0, pages 29-53, Springer.
    3. Jordi Galí & Frank Smets & Rafael Wouters, 2012. "Unemployment in an Estimated New Keynesian Model," NBER Macroeconomics Annual, University of Chicago Press, vol. 26(1), pages 329-360.
    4. Farhad Taghizadeh Hesary & Naoyuki Yoshino & Ghahraman Abdoli & Asadollah Farzinvash, 2013. "An Estimation of the Impact of Oil Shocks on Crude Oil Exporting Economies and Their Trade Partners," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 8(4), pages 571-591, December.
    5. Naoyuki Yoshino & Eisuke Sakakibara, 2002. "The Current State of the Japanese Economy and Remedies," Asian Economic Papers, MIT Press, vol. 1(2), pages 110-126.
    6. Farhad Taghizadeh Hesary & Naoyuki Yoshino, 2014. "Monetary policies and oil price determination: an empirical analysis," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 38(1), pages 1-20, March.
    7. Yoshino, Naoyuki & Taghizadeh-Hesary, Farhad, 2014. "Three Arrows of “Abenomics” and the Structural Reform of Japan: Inflation Targeting Policy of the Central Bank, Fiscal Consolidation, and Growth Strategy," ADBI Working Papers 492, Asian Development Bank Institute.
    8. Farhad Taghizadeh-Hesary & Naoyuki Yoshino & Abbas Assari-Arani, 2016. "Economic Impacts of Oil Price Fluctuations in Developed and Developing Economies," ADB Institute Series on Development Economics, in: Naoyuki Yoshino & Farhad Taghizadeh-Hesary (ed.), Monetary Policy and the Oil Market, edition 1, chapter 0, pages 75-91, Springer.
    9. Taghizadeh Hesary Farhad & Naoyuki Yoshino, 2013. "Empirical Analysis of Oil Price Determination Based on Market Quality Theory," Keio/Kyoto Joint Global COE Discussion Paper Series 2012-044, Keio/Kyoto Joint Global COE Program.
    10. Naoyuki Yoshino & Farhad Taghizadeh-Hesary, 2014. "Monetary policy and oil price fluctuations following the subprime mortgage crisis," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 7(3), pages 157-174.
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    Cited by:

    1. Farhad Taghizadeh-Hesary & Ehsan Rasoulinezhad & Yoshikazu Kobayashi, 2016. "Oil price fluctuations and oil consuming sectors: An empirical analysis of Japan," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2016(2), pages 33-51.
    2. Farhad Taghizadeh‐Hesary & Naoyuki Yoshino & Sayoko Shimizu, 2020. "The impact of monetary and tax policy on income inequality in Japan," The World Economy, Wiley Blackwell, vol. 43(10), pages 2600-2621, October.
    3. Taghizadeh-Hesary, Farhad & Yoshino, Naoyuki & Rasoulinezhad, Ehsan, 2017. "Impact of Fukushima Nuclear Disaster on Oil-Consuming Sectors of Japan," ADBI Working Papers 659, Asian Development Bank Institute.
    4. Eunil Park & Ki Joon Kim & Sang Jib Kwon & Taeil Han & Wongi S. Na & Angel P. Del Pobil, 2017. "Economic Feasibility of Renewable Electricity Generation Systems for Local Government Office: Evaluation of the Jeju Special Self-Governing Province in South Korea," Sustainability, MDPI, vol. 9(1), pages 1-13, January.
    5. Farhad Farhad Taghizadeh-Hesary, 2015. "Macroeconomic effects of oil price fluctuations on emerging and developed economies in a model incorporating monetary variables," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 2015(2), pages 51-75.

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    More about this item

    Keywords

    Easing of Monetary Policy; the Japanese economy; energy price; Bank of Japan; aging population;
    All these keywords.

    JEL classification:

    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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